Low deposit home loans nudge higher

RICHARD MEADOWS
Last updated 16:27 24/07/2014

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Banks' low deposit home lending continued to bounce back strongly in June after months spent lingering well below the Reserve Bank's "speed limits".

Since October last year, lending to homebuyers with a deposit of less than 20 per cent - called high loan-to-value ratio (LVR) lending - has been restricted to no more than 10 per cent of total new loans. 

Banks slashed their proportion of riskier lending more than the Reserve Bank expected, from 25 per cent in September to as low as 4.8 per cent in March.

However, the latest figures show banks wrote $358 million worth of fresh high-LVR loans in June, at the highest level since October.

The overall proportion of new high-LVR lending also climbed to an eight-month high of 8 per cent, from 6.8 per cent in May.

After accounting for various exemptions from the rules, such as new builds and government-backed Welcome Home Loans, the proportion was 6.7 per cent, or two-thirds of the speed limit.

Reserve Bank deputy governor Grant Spencer has said the bank was comfortable the restrictions were meeting their objective of helping to rein in the demand for housing while supply caught up.

In doing so, the Reserve Bank is trying to reduce the "systemic risk" of a housing market downturn that could have wider effects on the economy.

Spencer has said the bank would begin removing the restrictions "late this year" at the earliest.

That would be dependent on the housing market responding to the cycle of interest-rate increases.

The Reserve Bank lifted the official cash rate to 3.5 per cent this morning, the fourth rise this year, but signalled a pause on further increases until later this year or early next.

The central bank said house-price inflation had "moderated" further since its June statement.

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