Low deposit home loans have reduced by 5%

With the cash rate at a record low 2.5% and on hold, RateCity has found that the number of low deposit home loans on offer across Australia has reduced by more than 5% over the past year.

Low deposit home loans, which require savings of 5% of the property value or less for a deposit, account for 69% of the market, down from 73% in 2013.

RateCity product director Peter Arnold said that with the cheapest borrowing on record for over a year, the figures show that some borrowers are overstretching.

“So the banks are starting to take the reins on this matter and some are pulling in the belt before the regulators do,” said Arnold.

He expects the tightening up of lending criteria to continue.

“We see this as a good thing in terms of responsible lending, it means that borrowers, especially first home buyers, need to do the ground work and not borrow beyond their means,” he said.

On current available interest rates, with the average standard variable at 5.37%, a return to historical averages around 7% could see borrowers paying an extra $300 more per month on average and potentially more.