Lenders loan limits - what is LVR?
Lenders use a term called LVR – loan to value ratio – which represents your loan as a percentage of the security property value.
We’re usually familiar with the rule that a 20% deposit (or an 80% loan) is preferred – there’s a nice buffer in there for the bank should anything go wrong – and – in most cases under 80% we don’t have to ‘mortgage insure’ the loans.
Remember mortgage insurance is a policy that is taken out by the lender to protect THEM if you are unable to make your repayments, even though you pay for the insurance.
Most lenders will still lend you up to 90 – 95% of the value of most securities (with a hefty mortgage insurance premium).
But there are instances when they won’t, for example if the property is a little unusual, or overly large, or in a location where property doesn’t sell as quickly. The driver behind all of it is “prudent lending”, ie a property which both you or they could sell very quickly if it ever becomes an issue.
So that really unusual home may not be as favourable to a lender as it is to you.
Where this also comes into play, as per the above, is regional or country locations where property is always slower to move, or very large lots or very expensive homes – again because there are fewer buyers who are able / want to buy those properties. Reduced pool of potential future purchasers.
Inner city locations and high rise buildings can be an issue because really any time you drive past these really large developments there’s always a number of properties for sale within, and this means more competition and extended selling time for either you or the lender. Some lenders are now also imposing new ratios in particular metro suburbs which we haven’t seen before. This reflects sometimes issues that they are having in that suburb – or potential over exposure – the lender already has too many loans in that suburb or that development.
What does this mean for you – for one thing its ideal to have as much deposit together as you possibly can; for your own home you may still consider the location you absolutely have your heart set on – but for an investment perhaps it’s a little bit of wisdom that can help you with your investment strategy.
Full article from the Western Weekender https://issuu.com/weekenderpenrith/docs/property17feb/26