Low deposit home loans are becoming more difficult to get. First home buyers are requiring larger deposits to enter the market than they were a year ago.
Many lenders are still offering home loans with as low as a 5% deposit. However, they have changed the rules in regards to capitalising the costs of mortgage insurance. This has had a big effect on the total deposit requirements for first home buyers.
Lenders Mortgage Insurance is a once off insurance premium paid by the borrower. It protects the bank and is required by lenders on loans that have a lower deposit.
In most instances this covers loans where the borrower has saved less than a 20% deposit.
Capitalising your Lenders Mortgage Insurance is a fancy way of saying “borrowing the cost”. Many lenders used to allow you to borrow 95% and then add on the full cost of mortgage insurance.
Today most lenders won’t allow you to add the full insurance premium onto your loan. Mortgage insurance charges range between 2%-5% for a 95% home loan. This can have the effect of doubling minimum deposit requirements. This is before factoring in allowances for settlements costs and government fees & charges.
Commonwealth Bank & Westpac used to allow borrowers to capitalise LMI up to 97% of a property’s value. They have both reduced their thresholds to a maximum of 95%. NAB have not allowed capping of mortgage insurance above 95% in recent history.
Of the major banks only ANZ still allow adding on the mortgage insurance to a maximum of 97%. Criteria is strict though, and it is only applies to certain existing customers.
Reductions of stamp duty concessions and First Home Owners Grant has increased deposit requirements. Changes to mortgage insurance capitalisation will increase the amount first home buyers need to save.
Whilst it is more difficult with the major banks we do have access to smaller lenders who may be able to assist. If you’re looking at a low deposit home loan and would like to find out what options are available we can help. Please get in contact with us about our obligation free mortgage broker service.
Information correct as of October 25, 2016