First home buyers with 40% deposits set to snag cheaper home loans

Since the Reserve Bank’s (RBA) decision last week to reduce official interest rates to yet another record low, attention has been on the home loans market to see which banks would follow suit. 

While responses have been varied, with some focused on slashing variable rates and others on moving fixed rates, one thing is clear: even cheaper home loans are now on the table, especially for borrowers with loan-to-value ratios (LVRs) as low as 60%.

LVR refers to the portion of the property value that you owe your lender. So a 60% LVR means you’ve either saved a 40% deposit (if you’re a new customer) or built up 40% in home equity (if you already have a mortgage).

Over the past few months, there’s been an interesting trend of lenders serving up their top rate discounts to customers with LVRs of up to 60%. In light of the November RBA cut, these discounts have only gotten bigger. 

Take Reduce Home loans, for instance, who shaved 12 basis points (bp) off its Rate Cutter Variable loan, available only to borrowers with LVRs of 60% or less. This loan was already one of the most competitive offers in the Mozo database, but now it’s fallen even further to just 1.77% (1.83% comparison rate*).

Which lenders have cut their 60% LVR rates?

So far after the latest RBA cut, six providers in the Mozo database have sharpened their offers for LVRs of up to 60%. Below we’ve outlined the key changes, including how much rates have dropped and where they now sit:

Athena - Celebrate Variable Home Loan (part of the AcceleRATES Variable Home Loan)

• Full 15 bp cut
  
• Variable rates from 2.19% (2.19% comparison rate)
  

Homeloans.com.au - Low Rate Home Loan

• Full 15 bp cut
• Variable rates from 2.14% (2.16% comparison rate*)
  

Homestar - Star Gold Home Loan

• Massive 50 bp cut
• Variable rates from 1.79% (1.84% comparison rate*)

MyState Bank - Basic Variable

• 20 bp cut 
• Variable rates from 2.49% (2.52% comparison rate*)
  

Pacific Mortgage Group - Standard Variable Home Loan

• Partial 10 bp cut
• Variable rates from 1.89% (1.89% comparison rate*)
  

Reduce Home Loans - Rate Cutter Variable

• Partial 12 bp cut
• Variable rates from 1.77% (1.83% comparison rate*)

If I’m a first home buyer, can I afford a 60% LVR loan?

The short answer is yes - as long as you can save a 40% home deposit. But given that raising the standard 20% is already no easy feat, you may be wondering whether 40% is actually a realistic goal. 

Well, that depends on the property location you pick. As the latest Domain House Price Report (for September 2020) reveals, property prices can vary drastically from city to city, which means so can the ‘strength’ of your 40% deposit. 

For instance, while the median price of Sydney houses is above a million dollars ($1,154,406), in more regional suburbs like Cessnock or less populous capital cities like Perth, you’ll find houses being sold for less than half that price ($415,200 and $534,336 respectively).

Given those price differences, a 40% deposit could be as high as $461,762 (in Sydney) or a much lower $166,080 (in Cessnock). 

For a fuller snapshot, our map below shows how much properties are currently worth in various suburbs and states. If you hover over each location, you’ll be able to view its median house price as well as what a 40% deposit would look like:

Bear in mind, some lenders may only offer their lower LVR home loans to refinancers. So double check the restrictions and make sure the offer you’re considering is also available to home buyers before applying.

What if I already have a home loan?

Typically, it would be easier to have a lower LVR as a mortgage holder than a first home buyer. That’s because your LVR naturally decreases as you pay down your home loan over time, so you won’t need to go through the hard work of saving up for a 40% deposit. Other factors like a home renovation or a rise in housing demand in your area can also boost your equity position and lower your LVR.

Having a low LVR is good news especially in the current climate, where a range of lenders are not only moving rates in line with the RBA, but also tiering their rates according to LVR. Refinancing right now means you can both benefit from the reduced rates and take advantage of those LVR tiers to snag an even better bargain. 

Knowing your own LVR can also give you a significant upperhand when negotiating rates with your lender. So it’s worth doing a free property valuation offered by a big bank, then using that figure to work out your LVR (which is loan amount ÷ property value). A good rule-of-thumb is to then add 5% to your estimate (e.g. 60% LVR becomes 65%), as you’ll need to account for the fact that lenders may be more conservative in their final valuations.

What’s next?

Of course, low LVR customers aren’t the only ones being showered with rate cut love. Borrowers with LVRs of 80% or even 90-95% will likely also find that lower rate deals are now up for grabs. 

Interested in seeing which other lenders have moved their rates? Our article can help you keep track of all the latest home loan changes. Or if you’re ready to shop around, check out some competitive offers below.