Over the last few years, more and more Australians have been signing up for mortgages equal to 100 per cent – and sometimes even more, up to 110 per cent – of the value of the house or investment property they are buying. And while that was a huge advantage for people who had trouble saving a deposit, it’s also a big risk, both for the banks and the mortgage holder themselves – if something goes wrong and they need to sell the property, it’s certainly not always the case that the sale price will pay off the debt, even in times of a housing boom.
So it’s probably not a big surprise to hear – especially in the wash up from the global financial crisis – that banks have now decided that 100 per cent loans are something they don’t want to offer us for our future mortgages. According to reports, banks as well as other kinds of lenders have now ceased to offer 100 per cent loans to their customers, and are headed in the other direction instead – asking for larger deposits.
Apparently, if you are a prospective borrower without a good credit rating, or perhaps just without much of a credit history at all, a lot of the major lenders are looking for you to have a 20 per cent deposit – and with housing prices continuing to rise, 20 per cent can be a pretty large chunk of cash. Requiring a ten per cent deposit is also increasingly common and it certainly sounds like it would be nearly impossible these days to get a mortgage for more than 95 per cent of the value of the property you want to buy, no matter how good your credit rating. The risk is just too high for the lender. Which means: if you’re looking for a new mortgage soon, get saving.