Lending standards called into question
Home lenders are providing loans that will require the borrower to repay more than half their monthly income in repayments, well in excess of the defined 30 per cent level of mortgage stress. Amid fierce competition it appears many lenders are bypassing physical valuations in favour of cheaper online services. Data compiled by research firm Fujitsu Consulting reveals that one quarter of non-conforming loans are approved without an onsite inspection. In NSW the average loan to valuation ration (LVR) has increased from 51 per cent in 2003 to 75 per cent in 2007. The increase in loan sizes and inaccuracies in some valuation methods are placing borrowers in danger of negative equity (meaning they owe more than their house is worth).