Essentially, at the end of the day, if you can't even save a 5% deposit you shouldn't be buying a house
Who said they don't have a 5% deposit. Most of the loans that I have done the borrowers have all had a 5% deposit and more, but by using the assets that the parents have to increase the security for the bank the borrower avoids the mortgage insurance cost. I would see that as a sensible play. LMI can be many many thousands of dollars.
I haven't seen any banks lend 105% of the value of a house using a family guarantee just because they can. People look at the advertising and assume that banks take this to the limit every day of the week, that's not true. They can take it to the limit, but only where they see a borrower with good savings who may want to retain their funds to pay for something like much needed renovations, and they see guarantors in a strong position.
I not long ago had one declined because they didn't want to put the aging parents in a position that may cause them stress. In all aspects the loan met all criteria.
It really is on a case by case basis.
Any expressed market opinion is my own and is not to be taken as financial advice
Australia’s major banks are the most profitable in the developed world, the Bank for International Settlements says. Its figures highlight the big four’s consistently high returns as an inquiry investigates competition in the sector.
The major banks’ pre-tax earnings as a share of their total assets rose to 1.28 per cent in 2013, higher than 10 other developed countries, the influential BIS said in its annual report on Sunday night. It is the fourth consecutive year in which the sector’s profitability has been the highest among developed countries assessed by the BIS, including the United Kingdom, United States, Japan and various European nations.
The comparison also showed the Commonwealth Bank, Westpac, National Australia Bank and ANZ have wider net interest margins and lower costs than most of their peers overseas.
The US had the next most profitable banks, with earnings of 1.24 per cent of assets, followed by Canada at 1.06 per cent.
The only nations with higher profitability on the annual list were the fast-growing emerging or BRIC economies – Brazil, Russia, India and China.
The BIS said lenders around the world were benefiting from improving profitability, and building up capital faster than expected as they recovered from the global financial crisis.
But Australia’s stand-out profitability comes as the financial system inquiry being led by former Commonwealth Bank chief executive David Murray also examines the intensity of competition in the industry.
Pressure on bank tellers to push customers into Commonwealth Bank financial products such as insurance and managed funds is causing stress, depression and bullying, according to an explosive new survey of staff.
The survey obtained by Fairfax Media says the pressure of chasing sales targets is also leading to fraud at the bank.
Conducted in May by the Financial Services Union, the survey found that arbitrary performance targets linked to sales and customer satisfaction had resulted in "broken pay models" and "an erosion of trust".
Basically, it's a load of phone conversations between bankers in Anglo Irish Bank that were released last year. Some of the conversations are amazing, 1 of them basically predicts the next 5 years (i.e. the Irish Gov will take over the bank and guarantee the other banks to prevent a collapse, then the ECB, IMF and EU will back the Irish Gov, then they'll exit the bailout in about 5 years time)
What's notable is the fact that they were making record profits and preaching responsible lending, and in the tapes these execs discuss meetings with financial regulators and the government, when behind the scenes they were pulling a fast one! What's to say that Aussie Banks aren't doing the same?
What the CBA financial planning story revealed is that banks don't care as long as the money is coming in - can you honestly see a bank turning around and saying "no, we've made enough money this year, time to cut back on risky loans"?
I saw that someone referenced the Irish Bank tapes in the comments for an article on the CBA Senate Inquiry
The banks are definitely in full control of things, I'd say APRA are probably just as toothless as ASIC have been shown to be
I saw that someone referenced the Irish Bank tapes in the comments for an article on the CBA Senate Inquiry
The banks are definitely in full control of things, I'd say APRA are probably just as toothless as ASIC have been shown to be
Naturally.
Of course, one of the main problems when it comes to properly regulating the banks (apart from Spineless politicians) is the fact that if you really know something about how the banking system should and shouldn't work you are working for a bank not the regulator.
peter fraser
16 May 2014, 11:57 AM
Ireland is a currency user - the Irish Government needs Euros to do anything. The government had to go into debt in Euros to salvage their banking system. That puts a huge financial burden on the people until they can sell the banks back to the public.
If the same situation occurred in Australia our government would go into debt in AUD so the debt does not have to be funded in some other nations currency. That makes all the difference.
Our government can finance a purchase in money that they can raise easily and then later sell the banks back to the market for a profit.
Two entirely different system. When you think of Ireland think of a state like South Australia, not like a country.
Right Peter, just trying to understand your position here.
Here is what happened in Ireland ( its quite simple)
1. Banks make dodgy loans to property developers and on the mortgage book. 2. Other banks who had previously being funding this start to notice that some of this money might not be repaid. 3. Liquidity dries up highlighting the fact that banks are insolvent effectively. 4. Irish government guarantees the entire book in the hope that this will remove the liquidity blockage. 5. It doesn't, bank debt becomes sovereign. Clusterfuck.
Now what you seem to be saying is that the Australian banks could make similarly stupid decisions and come cap in hand to Government for a bailout.
But because, unlike Ireland, Australia has its own currency issuer, the RBA could just print money and give it to the banks to make whole their balance sheets.
And problems solved? In other words, the banks can fuck up as badly as they want and it doesn't matter because the RBA can backstop the lot.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
The Commonwealth Bank has delivered a record cash profit of $8.68 billion, a 12 per cent increase, and will raise dividends for the year by 10 per cent.
The country's biggest bank today delivered full-year earnings that were broadly in line with analyst expectations, as it painted a cautious outlook for the economy.
The record result was helped by a strong performance in its flagship retail bank, and further reductions in bad debts.
CBA will pay a $2.18 interim dividend, taking the full year payout to $4.01 a share, a 10 per cent increase on a year earlier. Market analysts had expected cash earnings of about $8.7 billion and a dividend of $2.14.
Chief executive Ian Narev said he was "cautiously positive" about the year ahead, as lower interest rates were boosting key sectors outside of mining.
"Lower interest rates have been positive for the housing and construction sectors, where increased activity has gone some way to offset the impacts of the anticipated reduction in investment in the resources sector," he said in a statement.
“If the stability in global markets continues, gradual increases in consumer spending and demand for credit from businesses over the next year are likely, as long as budget discussions are progressed and there is a clear understanding of Australia’s medium to long term economic direction.”
The largest division within the Commonwealth Bank, its retail banking arm, posted a 12 per cent annual rise in profits, helped by its dominant position in the mortgage market. The CBA writes one in every four mortgages, and it held this market share steady throughout the year.
Despite weak economic conditions, banks are benefiting from a fall in provisions for bad and doubtful debts, as fewer borrowers fall behind on their mortgage repayments. During the latest half CBA said its total provisions fell by 9 per cent, and this helped boost the bottom line.
Which raises the questions - what will happen in 2015 and what will CBA/the state/federal governments/developers/city councils do to return the same profit next year?
Which raises the questions - what will happen in 2015 and what will CBA/the state/federal governments/developers/city councils do to return the same profit next year?
Same?
I reckon CBA is only about a year and a half away from raping a billion a month out of Australia
Given these banks are to big to fall, shouldnt we have a super profits tax?
It is a pretty disgusting situation here in Australia, these banks can make so much money, but once their balance sheet goes bad they have an already set in place bailout of $380 billion by the tax payer.
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