The national average for loan to valuation ratios (LVRs) is trending downwards under increased pressure from rising property prices and tighter regulatory requirements.
The second
LVR Index from
CoreLogic and Equifax shows that the national average is now sitting at 73.4%, a decrease of almost one basis point from the first Index released in November 2016. This continues a downward trend which began in early 2013.
The Index looks at median dwelling values from CoreLogic and median residential loan application data from Equifax. The resultant trend is one in line with statistics from the
Australian Prudential Regulation Authority (APRA) that show a greater proportion of mortgages with LVR of more than 80%.
Neil Shilbury, general manager of commercial and property products at Equifax, said that this movement was a result of a number of factors.
“The strongest housing markets, such as Sydney and Melbourne, have been the primary drivers of lower application LVRs. Since 2012, CoreLogic indices show that Sydney and Melbourne dwelling values have increased by 75% and 54% respectively, yet we have seen loan application amounts increase more slowly. This is driving LVRs down,” he said.
Lower LVRs in the two main capitals of Sydney and Melbourne could also be due to fewer first home buyers in those markets, he added.
“First-home buyers generally have smaller deposits, and their slowdown of activity may be pushing overall application LVRs down.”
The latest data from the Australian Bureau of Statistics (ABS) show that first time home buyers represent 8.0% of owner occupier demand in NSW and 14.6% in Victoria.
LVRs are higher in states such as Western Australia where first home buyers make up 21.7% of the market. Additional factors such as decreasing dwelling prices in regions such as Perth could also be behind the higher LVRs.
In other capital cities, LVR figures show mixed results. In Brisbane and Darwin, the average LVR decreased, while in Adelaide, Canberra and Hobart they have remained stable. The average LVR in each capital city can be found below:
- Sydney (58.1%)
- Melbourne (65.9%)
- Brisbane (76.7%)
- Adelaide (75.4%)
- Perth (77.1%)
- Canberra (75.3%)
- Darwin (71.9%)
- Hobart (76.9%)
The level of application LVRs is an indicator of greater prudent lending standards and financial stability, said
Tim Lawless, head of research at CoreLogic Asia Pacific.
“The last few months have seen further rises in mortgage rates and renewed focus on credit policies. Additionally, lenders face higher capital requirements for residential mortgages, particularly those on high loan to valuation ratios,” he said.
“The banking regulator remains focused on ensuring mortgage lending is responsible, with a new focus on reducing the proportion of mortgages originating on interest only terms. In this context, regulators and policy makers are likely to see lower application LVR as a positive outcome, reflecting a lower risk scenario for borrowers.”
There is also a lot of variability in regional markets. While most exhibit an average application LVR of over 80%, a large portion show LVRs of more than 90%. The majority of these regions are linked to the resources of agricultural sectors, Lawless said.
“In these areas, such as Gladstone, Darling Downs and Murrumbidgee, loan application amounts are high, relative to the dwelling prices. Weaker housing market conditions are also a key factor, with many of the mining regions seeing dwelling values fall in excess of 30% since 2013/14.”
Regional areas that have the lowest average LVR tend to be satellite cities and coastal lifestyle markets, he added.
“Satellite cities like Wollongong have benefited from a spillover of housing demand, which has pushed up housing values. Many coastal regions have been impacted by equity-rich buyers seeking out holiday homes and retirement options.”
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