High Risk Loans Drive Property Prices Up

Loan to Value ratios above 80% of the property value has increased by the 3rd quarter, the highest recorded since the 2nd quarter of 2009. The current LVR average for New South Wales alone stands at 80%, from 60% in 2009. Interest only mortgages have also increased to its highest level on a 5 year span. These and other factors have caused home values to increase, according to the nation’s biggest banks.

With the Reserve Bank of Australia keeping the cash rate at 2.5% on their last meeting of the year, concerns regarding investment returns have been a concern, in case interest rates increase. Forecasted Home values for next year are expected to increase by 11%, according to SQM Research Pty.

The Australian Prudential Regulation Authority has called for mortgage limits to address these concerns, as this reduces risk and has been in effect in New Zealand and other countries. Lenders should also address concerns with lending standards, to ensure that high risk loans are offered to individuals with the financial capacity and understanding of the regulations.

Read more on the Bloomberg website.