The Reserve Bank of Australia has recently released data that shows that first home buyers are trying to find a larger deposit for the purchase of their first property, which means that when they meet with their mortgage broker, they can either decide to look towards a smaller mortgage with lower repayments every month or perhaps trade up to a larger property.
The number of potential homeowners that require more than 90% of the property’s value as mortgage has stopped increasing as more first home buyers are realising that making a larger deposit is a shrewd financial arrangement.
While there has been a fall in the numbers of first-time buyers who have been purchasing in recent years, 14% of people still borrow more than 90% of a home’s value with their first purchase.
Some banks have seen as much as 20% of people borrowing more than 90% of a property’s value when they buy for the first time, but the trend has been downwards over the past three years.
Avoiding Lender’s Mortgage Insurance Fees
When a buyer borrows more than 80% of a property’s value, this often triggers an insurance that the lender forces the borrower to pay for, but only benefits the mortgage company in the event that the lender need to foreclose on the property, to ensure they get the full amount of their debt returned if the house has to sell at a lower value.
The customer doesn’t benefit whatsoever from this insurance, apart from being able to complete the mortgage application and borrow the money they require. Without the insurance being in place, the lender won’t forward the mortgage for the purchase of the property.
Small Deposits Won’t Prevent Banks Saying Yes
Despite home buyers preferring to save for a larger deposit, lenders are still willing to lend money when an applicant can only find a deposit worth around 5% of the property’s value. This is because the risk to the lender isn’t necessarily any higher than a person applying with a small deposit, because the insurance will cover the difference if house prices fall again.
At the same time, if the bank approves a loan, it means they must be satisfied that the customer can repay the monthly amount on a regular basis.
There has, however, been a shift away from the very high 97% loans that were available where people could also borrow the money for the lender’s mortgage insurance, which meant that banks were effectively lending the full value of a property, which meant that if property values decrease the homeowner already has negative equity.
By meeting with your mortgage brokers, such as at our Rockingham mortgage office (we serve the Rockingham, Baldivis, and Kwinana region), you will be able to discuss the advantages and disadvantages of saving for a larger deposit as well as find out what your options are.