8 October 2009


Planning the dream purchase

Uncertain economic conditions have seen many Lenders return to a more cautious approach in their lending policies in order to prevent an increase in defaults or arrears amongst borrowers. La Trobe has maintained a proud and consistent policy of requiring borrowers to demonstrate genuine savings in order to safeguard against such calamities, lending up to a maximum of 80% of the property valuation in most instances.

Other Lenders are now too seeing the advantage of this approach and it is not uncommon to hear of an insistence to have borrowers demonstrate 5% genuine savings for home loans when the LVR is over 80% - with some even introducing a stipulation of an LVR over 85%. Gone are the days when homebuyers could access loans for 95% or even 100% of the total purchase price and first home buyers cannot rely solely upon the FHOG to use as a deposit.

A borrower paying $360,000 for their first property may be able to borrow up to 90% of the purchase price; however, they would also need to contribute at least 5% of their own money, in addition to any money received from the FHOG, plus any other state or territory based incentives into the loan. The borrower will also need to pay for additional costs related to the purchase, such as building inspections and solicitors, rather than, as has been the case, use the loan amount to cover this.

Forward planning is needed when borrowers are planning to make that dream purchase of home ownership. Understanding the need for a solid savings plan to both take that first step and maintain ownership of property is paramount. La Trobe has a history of strong financial management and expert market understanding which, in partnership with sound advice from Brokers, assists borrowers in turning that dream into reality – for the long term.

Mortgage Arrears - Australia placed very well internationally

    30+ Day Prime Arrears by Country

Graph
Click to enlarge

Current Interest rates set by the Reserve Bank of Australia will help improve serviceability and may improve arrears if unemployment remains contained. As a whole, underlying residential loans continue to perform very well. Arrears are rising but off a very low base and from an international standpoint, Australian collateral is performing very favourably versus offshore peers. Over the third quarter of 2008, the level of arrears from some of our most comparable offshore counterparts showed significant increases. As can be seen in the chart, Spain, Portugal and the United States were the worst performers with 30+ day arrears increasing significantly to 5.1%, 4.0% and 4.3% respectively. Italy, Germany and the UK also showed further signs of deterioration pushing up towards the 3% level. Despite the recent slight rise, Australia continues to track favourably, joined at the lower end of the arrears spectrum by the Dutch.


Best regards
Iain Pepper




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Iain Pepper
Head of Lending

Iain Pepper is a Vice-President and the Head of Lending for the La Trobe Group.Read full profile here.








La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 145 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

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