Data groups join forces to track home loan LVRs

The new LVR index, released this week, found that the national average of LVR is currently tracking at 74.3 per cent. The index draws on the CoreLogic median dwelling values compared against the median residential loan application amount from Veda.

The index found that while the current application LVR is 1.7 percentage points higher than in 2011 (72.6 per cent), it is significantly lower than when it peaked in 2013, when the average application LVR was measured at 78.9 per cent.

Veda’s general manager of commercial and property solutions, Moses Samaha, said the new index would leverage Veda and CoreLogic’s data and insights to provide more detailed analysis of market conditions.

“We are excited to be partnering with CoreLogic to offer more detailed insight into the housing market and level of leverage households are typically committing to,” Mr Samaha said.

“In the past 12 months to September, we have seen the national median dwelling valuation rise 5.5 per cent and the median residential loan enquiry amount rise 3.4 per cent.

Geographically, the application LVR trend is being driven downwards by higher equity levels and substantial household wealth across the premium housing markets of Australia, particularly in Melbourne and Sydney, the report found. However, Sydney has recently experienced an upswing in average application LVRs.

Mr Samaha said it is common for capital cities with weaker housing market conditions to experience an increase in average application LVR.

“For example, Perth’s application LVR has jumped from 72.8 per cent to 77.1 per cent in the past five years, sitting 2.8 percentage points above the national average,” he said.

“Sydney dwelling values have increased by almost 95 per cent since the beginning of 2009 which has created a large amount of equity for those who have owned a dwelling during this time. High equity is likely one of the key factors that has pushed application LVRs lower in Sydney and to a lesser extent, Melbourne.”

Average application LVRs in the other capital cities show mixed results. Application LVRs in Canberra and Hobart have levelled off recently on the back of improving housing market conditions. Brisbane has also seen the application LVR trend lower, reducing from a peak of 80.5 per cent in October 2013 to the current reading of 77.7 per cent.

According to the Veda and CoreLogic findings, the trend towards lower application LVR estimates since 2013 can be attributed to a number of factors.

The increasing volume of refinancing and mortgage top-ups for renovations or home extensions is likely to be a key factor driving application LVR measurements lower.

Tim Lawless, head of research at CoreLogic Asia Pacific, said the level of application LVR is an indicator of prudent lending standards and financial stability.

“Regulators and policy makers are likely to see the lower application LVR as a positive outcome, which is reflective of a more considered and prudent lending regime,” Mr Lawless said.

“One of the factors contributing to lower application LVRs is the heightened risk assessment many lenders are applying to select housing markets, whereby larger deposits are required to offset higher lending risk.

“Markets where dwelling values have shown substantial and rapid growth, where supply levels are high, or markets with disproportionate exposure to singular industries, such as mining towns, are typically, being assessed by lenders as higher risk. Lenders in these markets are demanding lower LVRs to help minimise their own risk.”

The index supports a similar trend in LVR reported by APRA, which shows LVRs originating between 60 and 80 per cent have comprised a larger proportion of lending.

[Related: Is APRA about to curb lending again?]