We have seen a lot of applicant’s loans being affected as the lending policies have become more stringent. This is mainly to do with the requirements of the lender mortgage insurance companies.

Lender Mortgage Insurance is an insurance which a bank has to take out on a loan whereby they lend over 80% of the value of the property or purchase price. This is for a full documented loan application. For a lo doc application the loan has to be insured when a lender lends over 60% of the value of the property or purchase contract.

This insurance is compulsory for the lenders and the downside is that the borrower has to pay for it. There is no benefit at all to the borrower as this insurance will pay out the lender if your loan defaults and the lender have to sell up your property in order to reclaim their funds. Most lenders will sell the property not at a profit but to get back the monies owed to them.

If there is a shortfall on the sale price and the monies owed to them, this is where the lender mortgage insurance companies kick in and pay the lender any shortfall.

Some lenders have their own in house mortgage insurance and therefore different lending criteria and policies will be in place, depending on who the lender is.

Ultimately the final decision on whether the lender can lend the money or not comes down to the lender mortgage insurance company and not the lender where lender mortgage insurance is involved.