LVR stands for Loan to Valuation Ratio. It’s the percentage of the property’s bank valuation that you’re borrowing. The key point is that it’s based on the bank’s valuation, not just the contract price.
Most of the time the bank’s valuation is close to what you’ve agreed to pay, but sometimes it can be lower than the market price.
For example, if you buy a property for $1 million and the bank also values it at $1 million, and you need to borrow $0.8 million, then your LVR is 80%.
A comparison rate is a way of showing the true cost of a loan. It combines the interest rate with most of the main fees and charges – for example application fees, annual fees, account-keeping fees and registration fees – so you can more easily compare one home loan with another.
LMI stands for Lenders Mortgage Insurance. It’s a type of insurance that protects the lender if you’re unable to repay your home loan.
When your LVR (loan to valuation ratio) is above 80%, the lender will usually charge LMI as a one-off cost. The amount of LMI you pay depends on your LVR and the total size of your home loan.
Genuine savings are funds you’ve saved and held in your own name over time.
When your LVR is above 90%, most lenders will want to see that 5% – 10% of the property price comes from genuine savings. These can include cash in a savings account, term deposits, or managed funds and shares, as long as you can show they’ve been held for at least 3 months.
Home equity is simply the portion of your property that you truly own. As you pay off your home loan and/or your property value rises, your ownership share (your “equity”) increases.
For example, if you buy a home worth $1 million with an initial loan of $0.8 million, the lender is effectively funding 80% and your equity is 20%. A year later, if the property value grows to $1.3 million and the loan is still $0.8 million, your equity has risen to about 38.5%, and the lender’s share drops to around 61.5%.
With today’s more flexible lending options, many Australians use this increased equity to borrow for a second property or other goals through a home equity loan.
From a long-term view, residential property is still a relatively stable investment option:
Australia is a country built on migration, and migration levels can be adjusted to help balance supply and demand in the economy.
Recent softer market conditions have slowed new development. Once the existing stock is absorbed, this is likely to create a new round of demand.
Inflation and unemployment are currently sitting at relatively stable levels.
Australia remains a highly urbanised country, with most people continuing to live in major cities such as Sydney, Melbourne and Brisbane.
For now, the Reserve Bank of Australia is still keeping interest rates around historically low levels.
Yes, it can happen, but it’s not very common.
After you sign the loan documents, they go back to the bank for final checks. If the file is randomly selected for audit and the bank finds issues or inconsistencies in your application, they can still choose to withdraw or cancel the loan.
From what we know, banks do share information for products like credit cards, car loans and personal loans. For various reasons, information on home loans is not yet completely shared in the same way.
With credit policies tightening, many investors are asking how they can boost their borrowing power. Based on recent experience, here are a few practical suggestions:
Reduce existing debts
Try to pay down things like personal loans, credit cards and car loans. These all count against your borrowing capacity, so the less you have, the better.
Keep everyday spending under control
Lenders now look very closely at your living expenses. Their goal is simple – to make sure they’re lending to people who can comfortably repay the loan. High day-to-day spending can seriously drag down your borrowing capacity, so if you’re planning to apply for a loan, it’s worth trimming regular expenses first.
Consider a “rent and buy” strategy
This won’t suit everyone, but younger investors might look at sharing accommodation to reduce living costs while using their savings and borrowing power to build an investment property portfolio and grow long-term wealth.
Increase rental income from existing properties
For apartments, you could look at light renovations to justify a higher rent. Well-located apartments may be suitable for short-stay or Airbnb-style letting. For houses, adding a granny flat is another way to boost rental income.
Compare different lenders
Each bank has its own lending criteria and maximum loan amounts. For example, on the same income, Bank A might lend $530,000, Bank B $570,000 and another lender $620,000. Shopping around can sometimes unlock a noticeably higher limit.
Joint investments
Partnering with others is now a common way to invest. You can apply for a loan together to buy an investment property, or set up a trust or similar structure to invest in property as a group.
Increase your active income
This might mean going for a promotion, changing to a higher-paying role, or taking on a second job or side gig. Higher, stable income will generally lift your borrowing capacity.
With interest-only (IO) repayments, the more money you keep in your offset account, the less interest you pay each month – so your required repayment goes down, because the offset is directly reducing the interest charged.
With principal & interest (P&I) repayments, your total monthly repayment is usually fixed. Money in your offset account only reduces the interest portion of that repayment. The interest goes down, so more of your monthly repayment is used to pay off the principal instead.
In other words, having more money in your offset account won’t usually change your monthly repayment amount, but it can shorten your overall loan term and reduce the total interest you pay over the life of the loan.
Based on current investment home loan offers from the banks, variable rates are generally around 4.30% or higher, and if you choose an interest-only repayment, the rate is usually even higher.
By comparison, two-year fixed rates on principal & interest loans are often around 4.19%, and some lenders can go as low as 3.88%.
So for many investors, a fixed rate investment loan is often the preferred option.
If you don’t have any income at the moment, banks generally won’t approve a new home loan, regardless of your visa or residency status. Lenders need to see that you have ongoing, stable income to meet the repayments.
Unless you find a new job and can provide proof of your employment and income, it’s very difficult to get a loan approved.
Whether you’re on a TR visa or a 457 visa, as long as your local income meets the bank’s requirements for the property you’re buying, the maximum LVR most banks will consider is around 80%.
In your current situation, having PR but no employment , Australian banks generally won’t approve a home loan. The main reason is that lenders must be confident you have ongoing income to meet your repayments and to manage their risk.
Once you have a full-time job in Australia and have been employed for around six months or more, you can then approach local banks to apply for a loan. The amount you can borrow will be assessed mainly based on your annual salary from that job.
In Australia, when you buy a home it’s generally recommended to keep your loan-to-value ratio (LVR) at 80% or below. Once you borrow more than 80%, most banks will require you to pay Lenders Mortgage Insurance (LMI) to a third-party insurer.
LMI can be quite expensive. For example, with Genworth, if you buy a property for $700,000 and borrow 85%, the LMI premium is roughly $8,500 – close to 1% of the property price. Because of this, most borrowers won’t deliberately choose a high LVR unless they have to.
For investors or buyers whose funds are tight, there are a few common ways to deal with a short deposit:
Using equity in an existing property (up to effectively 100% lending)
If you already own a property, you may be able to release equity and use it as the deposit for the new purchase. In some cases this allows you to borrow up to 100% of the new property’s price, so you don’t need to put in new cash. For investment properties, the interest on this extra borrowing may also be tax-deductible, helping you maximise negative-gearing benefits.
Using another person’s income or property as support
For buyers without their own property, it’s common for parents to act as guarantors and offer part of their home as additional security. In some situations, other family members or even close friends may be willing to help. As long as it fits within the bank’s policy, this can be an acceptable way to bridge the deposit gap.
Relying on a higher bank valuation
Many investors use the bank’s market valuation rather than just the contract price. For example, if you’ve agreed to buy a property for $1 million but the bank values it at $1.1 million, some lenders will allow you to borrow 80% of the $1.1 million valuation ($880,000) without paying LMI.
If you’ve already paid a 10% deposit ($100,000), you may only need to contribute an extra $20,000 at settlement to complete the purchase.
Each of these strategies has pros and cons and may increase your risk, so it’s important to get personalised advice from a broker or adviser before making a decision.
A 66W certificate is a document you sign to give up your cooling-off rights when buying a property.
Under normal circumstances in NSW, a buyer has a cooling-off period of five business days (or longer if agreed). During this time, the agent cannot sell the property to someone else, and the buyer can still withdraw from the contract by forfeiting only a small portion of the deposit. This period allows you to wait for the bank valuation to come back and to obtain building and pest reports, so for many buyers it is an important layer of protection.
Because some properties are highly competitive, agents and vendors worry that buyers might change their mind or reduce their offer after signing. To avoid this, they sometimes strongly encourage buyers to sign a 66W so that the sale becomes unconditional straight away.
Here is a real example. A friend of mine bought a property on the North Shore. Worried about other interested buyers, she agreed to sign a 66W. Two days later, the bank valuation came back about $270,000 below the agreed purchase price. That meant she needed a much larger deposit, which she simply couldn’t organise in such a short time. She was lucky that another bank later valued the property at the full purchase price; otherwise she could have been facing a potential loss of well over $100,000.
So while a 66W certificate can help you secure a property in a competitive market, it also exposes you to significant risk. In general, it is better to keep a cooling-off period if you can. If the agent insists on a 66W and you still want to go ahead, you should only sign if you are absolutely confident about your finance, have more than enough deposit and buffers available, and are prepared to accept the risks involved. If your savings are tight or your approval is not completely secure, it is safer not to sign a 66W to avoid unnecessary financial loss.