When You Have Less Than a 10% Deposit

21 November 2016
With the Loan to Value Ratio (LVR) restrictions imposed by the Reserve Bank reducing the availability of funding for loans above 80% for owner occupied homes down to 10% of a lender (bank’s) entire lending portfolio we thought that we should address issues that we are currently experiencing.
A couple of weeks ago all banks confirmed that there was no above 80% loans available at all.  However they advised that this could change and was being checked on a daily basis.  Last week we had one bank come back and say that they now had funds available for above 80% loans.  This means that the availability of above 80% loans will change almost daily.  
All lenders are only assessing loans above 80% when there is a signed sale & purchase agreement in place ie there are no pre-approvals available for clients who have less than a 20% deposit.  
We are seeing a lot of clients going in to their banks and getting an overly positive response from their bank that the loan will be approved when the client finds a property.  However when the client returns with their sale & purchase agreement the loan has been declined due to other reasons – ie the loans are not being thoroughly assessed by the bank.  If lending above 80% Lenders want perfect credit, small to zero external debts and good account conduct with their bank accounts.  
Welcome Home loans are an option for loans above 80% where the purchase price is under the maximum limit of $400,000 in the Eastern Bay of Plenty.  However many clients in this area have incomes above the maximum thresholds making them ineligible for a Welcome Home Loan.  
So given what’s happening above what are the recommendations for our clients who have less than a 20% deposit:
1) Try to increase deposit to the magic 20% - eg discuss family could assist in boosting the deposit.  
2) Keep external debts to a minimum, maintain a good credit rating and ensure that your bank accounts are operated perfectly ie no unauthorised overdrafts, no reversal of automatic payments
3) When looking for a property ask for a 10 day finance clause.  This allows plenty of time to get the loan approved and satisfy all conditions for the loan approval (the most time consuming being the registered valuation).
4) Consult your mortgage broker prior to looking to buy a property.  No bank will give formal pre-approval for above 80% loans but a mortgage broker can assess your situation and highlight areas that need addressing and formulate a strategy to put you in the best possible situation come the time when you find a house.  They can then process the application giving you the best possible chance in getting your loan approved as they can deal not only with the client’s bank but also other banks who may have more availability of funds for loans above 80%.

Published In Whakatane Beacon

This post was written by

Trish Marsden - who has written 96 posts

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