Good news for would-be house buyers with small deposits - the banks seem to be more willing to lend to you.

Home loans for people with a deposit of less than 20 per cent almost entirely dried up when the new loan-to-value restrictions kicked in last October. The rules were designed to shore up financial stability and required banks to lend no more than 10 per cent of new home loans to borrowers with a deposit of less than 20 per cent.

But lending to those borrowers almost stopped entirely. About 25 per cent of banks' loans had been to people with small deposits before the rules kicked in. By February, even including loans exempt from the restrictions, like Welcome Home Loans and lending for new builds, only 5.2 per cent of the banks' loans were to borrowers with a deposit of up to 20 per cent.

That's made life difficult for first-home buyers, and the publicity about the change has made many decide it's not even worth trying for a loan. Those who did manage to get one were also charged higher interest rates plus extra premiums and fees on top of the rates, because of their small deposits. Brokers told me it was partly a way to slow demand - if loans were so expensive, banks hoped that fewer people would apply and so fewer would have to be turned away. But it seems that it's all been a bit too effective.


Banks look like they're willing to look again at the entry-level segment of the market. Several have quietly dropped their two-tier pricing structure - ANZ was one of the last but last week changed the rules for its higher rates for low-equity borrowers.

Now only those with a deposit of 10 per cent or less must pay an extra 50 basis points on top of the standard advertised rate.

But most banks still charge low-equity premiums or one-off fees. In ANZ's case, people with a small deposit must pay a one-off fee of up to 2 per cent of the total mortgage amount.

The moves away from advertised different rates are being heralded as a sign of a change in the market. The harshest impact of the LVR restrictions appears to have passed.

Banks now know how to operate within the rules and are asking for more applications. They might not want to get near the 10 per cent limit and risk losing their licences, but they'd like to lend a bit more than 5 per cent. Many people who want to get into their first homes probably think the change can't come soon enough.