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Bank tightens LVR for fixed-rate loans

by Malavika Santhebennur11 minute read
Bank tightens LVR for fixed-rate loans

Teachers Mutual Bank has reduced the maximum LVR for fixed-rate home loans with LMI, effective 17 August.

Teachers Mutual Bank Ltd (TMBL) has announced that it has decreased the maximum loan-to-value ratio (LVR) on fixed-rate home loans with lender’s mortgage insurance (LMI) from 95 per cent to 90 per cent.

The changes are applicable across all of the non-major lender’s divisions, which include Firefighters Mutual Bank, Health Professionals Bank, Teachers Mutual Bank and UniBank.

In an update to brokers, the lender said fixed-rate home loans would only be permitted where the LVR is 90 per cent or lower, including the capitalisation of LMI.


The bank will no longer approve applications on a fixed-rate home loan product on either one, two, three, four or five-year fixed rate if the LVR is greater than 90 per cent with LMI.

According to the bank, any owner-occupier or investor home loan application with an LVR greater than 90 per cent with LMI must be on an applicable variable rate product, such as My First Home Loan, Solutions Plus or Flexi Choice.

These changes do not apply to home loans with LVR of greater than 90 per cent that fall under the First Home Loan Deposit Scheme.

Mark Middleton, head of third-party distribution, TMBL, said this decision to change its pricing strategy was made “upon review of our offerings in the market”.

The changes are only applicable to new applications received and will not apply to existing borrowers or applications yet to be finalised.

Under the changes, which are effective from 17 August, any applications received by the bank from this date will need to be assessed under the new lending criteria.

Any application where conditional approval or approval-in-principle has expired will be assessed under the new lending criteria from 17 August.

The changes follow several others by the lender as it has adjusted its risk appetite amid ongoing credit quality risks associated with the coronavirus pandemic crisis.

It recently announced that it has reduced its debt-to-income (DTI) ratio – calculated with the applicant’s total financial debt commitments divided by their total gross income – from a maximum of 8 to 7.

In May, TMBL announced that it would cease lending for off-the-plan property purchases in response to credit quality risks amid the COVID-19 crisis.

TMBL bucked the trend in May when it increased fixed rates across its owner-occupied and investment products in response to a rise in funding costs. It raised interest rates across two- and three-year fixed owner-occupied and investment home loans by 5 bps.  

Several lenders across both the non-bank and ADI space have reduced their risk appetites in recent months in response to the economic fallout from COVID-19.

The Reserve Bank of Australia recently revised its outlook for dwelling investment as Victoria has been saddled with further lockdown measures to curtail the second wave of the coronavirus.  

RBA assistant governor Luci Ellis recently said in an update that the RBA’s outlook for dwelling investment has been further impacted by newly imposed lockdown measures, a steeper decline in labour market conditions and more “generalised uncertainty” hindering people’s decisions to purchase homes.

She added that extended restrictions on overseas migration would also hinder dwelling investment activity.

[Related: TMBL increases LVRs for loans with LMIs]

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Malavika Santhebennur


Malavika Santhebennur is a content specialist at Momentum Media, focusing on mortgages and finance writing.

Before joining Momentum Media in 2019, Malavika held roles with Money Management and Benchmark Media, where she was writing about financial services.

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