MORTGAGE lenders are returning to "reckless" practices last seen before the credit crunch, lending desperate homebuyers more than a property is worth in a bid to keep the market rising.

Next month, non-bank lender Mortgage House will offer a home loan equivalent to 105 per cent of the property's value - the most generous deal since the global financial crisis kicked in three years ago.

The company also offers a 99 per cent loan-to-value ratio loan, which it launched last month, and says applications have been flooding in.

"Demand is really strong; people are finding it difficult to save substantial deposits" Mortgage House CEO Ken Sayer said.

But it's not just the non-banks that are splashing the cash.

Last week, Westpac raised its LVR for new customers from 87 per cent to 92 per cent, reversing the cut it made back in January; while ANZ also last week raised the maximum LVRs from 95 per cent to 97 per cent for existing customers, and from 90 per cent to 92 per cent for new borrowers.




Commonwealth Bank has left its LVRs unchanged, at 97 per cent, but is trying to attract extra business by increasing its discount from 0.6 per cent to 0.7 per cent on loans taken out before the end of October.

With affordability at near-record lows, experts say banks have had to loosen their lending criteria or see potential buyers priced out of the market. "Banks need to keep on lending but, with house prices rising, they have to lend more - Westpac customers will now be able to borrow almost double what they could before," University of Western Sydney economics professor Steve Keen said.

"Little changes in LVRs have a massive impact on what you can borrow. If you need a deposit of 13 per cent and have $50,000 saved up, that cash will enable you to spend $384,000 on a property.

"But if the bank will lend 92 per cent, your $50,000 will allow you to buy a property worth $625,000."

Westpac denied it was fuelling house-price growth and said the falling unemployment and strong economy were behind its decision.

"This change reflects our growing confidence in the economic environment, reflected in the low level of delinquencies for this market segment," it said.

ANZ's motives are less clear: the company refused to comment.

Mortgage House's 105 per cent deal is targeted at first-home buyers, helping them cover costs associated with entering the market.

But it denied that it constituted irresponsible lending.

"We are being very particular about the borrowers we are lending to, and the types of properties they're buying" Mr Sayer said.

"Unless the borrowers have a good credit record - and the properties are readily saleable - we'll be much more conservative."

But John Symond of Aussie Home Loans warned a return to pre-GFC-style lending would be disastrous.