The majors are lending to more borrowers with deposits of 5 per cent or less, and the trend looks set to continue.
Ultra-high loan-to-value (LVR) loans have become the fastest-growing segment in the mortgage market, as interest rate cuts and intense competition drive banks to explore higher-risk lending.
Loans above 95 per cent LVR ratio surged to a record $14.2 billion in the 12 months to June, according to APRA ADI data for the June 2025 quarter, analysed by Primara Research for financial advice firm Our Top 10.
Lending to borrowers with deposits of under 5 per cent was the fastest growth area in mortgages, increasing at 20 per cent annually to outpace total mortgage growth of 15 per cent.
The big four banks are driving the trend, according to Primara Research, originating nine out of 10 of these loans, well above their total market share of 75 per cent of all ADI home loans, as they battle for borrowers in an increasingly competitive market.
The ultra-high LVR segment now represents 2.1 per cent of the mortgage market, marking a shift in lending appetite.
Since the end of 2019, annual loans of more than 95 per cent have soared by 165 per cent, more than any other LVR category.
Primara Research said its analysis showed higher-risk lending growth is being fuelled by falling interest rates and intense competition among forcing lenders to expand their risk appetite to capture market share.
‘Growth set to explode’
The Home Guarantee Scheme expansion came into effect earlier this month, three months ahead of its original starting date, opening up the government-backed mortgage program to all first home buyers – regardless of income.
Primara Research noted the policy changes meant growth was “set to explode” for ultra-high LVR loans.
First home buyers currently represent around 20 per cent of the new loan market and can now access 5 per cent deposit loans without paying lenders mortgage insurance.
Simon Ma, CEO of Our Top 10, said the policy change is expected to unleash a surge in ultra-high LVR lending as banks position themselves to capture the expanding market segment.
“Banks are clearly willing to take on more risk to win customers in this competitive environment,” Ma said.
“With FHBs about to gain access to 95 per cent loans without LMI penalties from October, we’re looking at a potential explosion in this lending category.”
Looking ahead, Primara Research cited industry experts in predicting that the Home Guarantee Scheme’s expansion will “fundamentally reshape the mortgage landscape”, with ultra-high LVR loans potentially doubling their market share within 18 months.
[Related: Brokers braced for action as expanded Home Guarantee Scheme launches]
