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Bank lowers LVR cap for owner-occupied lending

A non-major lender has reduced its risk appetite in response to market conditions, lowering its maximum LVR for lending to owner-occupiers.

The Bank of Queensland (BOQ) has informed brokers that it has reduced its maximum loan-to-value ratio (LVR) for owner-occupied lending with capitalised lender’s mortgage insurance (LMI) from 98 per cent to 95 per cent.

The group-wide changes (including Virgin Money) will apply to all new applications received from Tuesday, 23 June, and for expired loan approvals.  

BOQ Specialist products, however — which provide medical professionals with loans with an LVR of up to 100 per cent — are exempt from the policy revision.

BOQ told Mortgage Business that the bank’s decision was designed to reflect current market conditions, along with “a range of other factors”, to ensure its credit policies “are appropriate to the current operating environment”.

Last month, BOQ also tightened its income verification requirements in response to uncertainty in the labour market off the back of lockdown measures imposed to curb the spread of COVID-19.

Such changes included temporary limits on acceptable non-PAYG income types, enhanced requirements for PAYG and self-employed income validation.

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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.

Analysts, including Moody’s vice president and senior credit officer Alena Chen, continue to forecast a sharp rise in credit losses over the coming months, particularly once mortgage deferral period expire in September.  

However, some credit providers, including non-bank lender Bluestone, have rolled back some of their restrictions in recent weeks.

After hiking interest rates, withdrawing its lien of credit product and reducing cash-out limits in March, Bluestone revealed last week that it would lift such measures and reduce rates by between 10-110 bps 

This came amid renewed optimism from the Reserve Bank of Australia (RBA), which stated that an economic recovery may be nearer than initially anticipated amid the easing of lockdown restrictions.

“It was possible that the downturn would be shallower than earlier expected,” the RBA noted in minutes from its monetary policy board meeting in June.

“The rate of new infections had declined significantly, and some restrictions had been eased earlier than had previously been thought likely.”

However, the RBA warned that the outlook remained “highly uncertain”, with the pandemic likely to have “long-lasting effects on the economy”.

[Related: Non-bank winds back lending restrictions]

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