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Loan Standards Drop To Keep The Bubble Afloat

You’ve seen the stories about how, in Australia, mobile homes made from converted shipping crates are selling for – wait for it! – as much as $1 million. Well, seems like the Australian bankers are doing everything they can to prevent the inevitable implosion of the insane housing bubble Down Under. Check out the latest from Steve Keen’s DebtWatch…

I’ve just been alerted by Banking Day (a subscriber-only service) that Westpac–via its subsidiary St George–is now allowing potential borrowers to treat their rental payments as “evidence of genuine savings” when applying for a home loan.

This is of course portrayed as good thing in the press release that announced the development–issued by the broker Loan Market (see the press release at the end of this post). It will, they state, enable Australians who currently can’t afford to buy a home–because they can’t save a deposit–to do so. All good news.

The more cynical interpretation is that this is a way to let banks increase their maximum LVR (loan to valuation ratio) without actually saying so, and to expand their pool of potential borrowers as a consequence. At present, you need a $30,000 deposit to bid $1 million for a property if you get a loan from the Commonwealth Bank, which currently has one of the highest maximum LVRs of 97%: “The maximum we will lend you is 95% of the valuation amount. We also add the Lenders Mortgage Insurance or a Low Deposit Premium to your loan (up to a maximum of 97%), so it doesn’t cost you anything upfront”.


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