Over the past two years, Australian banks have been pretty conservative about debt. They all dropped their loan-to-value ratios (LVR) and many were knocking back good loan applications because they simply didn’t want new loans on their books.
This was pretty frustrating for smart investors who wanted to take advantage of the temporary market lull. If the banks had been willing to back them, they could have made some great gains in 2009 – both in property and shares!
Now don’t get me wrong, I support a cautiously optimistic view with lending. Banks should be careful about who they lend money to – not only for the benefit of their own businesses but also for the benefit of our economy. It was mass loan delinquency in the US that triggered the GFC, so we definitely want our banks to be smart about lending.
And today, with our economy strong and our ability to service debt high again, banks are coming back to the party. Not only are they willing to lend again, but they’re also willing to lend at a higher rate – up to 95 per cent LVR.
This has reopened the door to investment. Investors accounted for 35.4 per cent of all business for the AFG Mortgage Index (which aggregates over $2 billion mortgages monthly) in October. This is fantastic to see as property is one of the best ways for Australians to build wealth for the future. This year and 2011 remains a great time to buy and there are loads of excellent opportunities, particularly in large regional and coastal towns.
But back to lending. It looks like investors and homeowners are shopping around for the best deals now that the banks are becoming competitive again. The latest AFG Mortgage Index shows refinancing made up almost 40 per cent of national mortgage sales in the September quarter, which is 10 per cent higher than the long-term average.
So, if you need to apply for a loan, I’d like to help. Here at McGrath, we have a finance division called Oxygen Home Loans and I asked the general manager, James Green, to give us his top five tips for improving your chances of success.
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