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Trust us, we’re APRA - Australian banks offering guarantor mortgages up to 100% of purchase price
Topic Started: 28 Jul 2014, 10:45 AM (3,845 Views)
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http://www.afr.com/p/business/financial_services/big_banks_home_lending_is_closely_Qrh8fv3LSSr2fY8lIiO01L

Australia’s big four banks are now offering “guarantor loans” at up to 100 per cent of the purchase price of houses and apartments. This means people can borrow without a deposit if they have a family member as a ­guarantor. Asked if this was too risky, APRA chairman Wayne Byres said the regulator was closely monitoring banks’ exposure to house prices.

“The Australian banking system clearly has a concentration of risk in housing,” he said at a Committee for Economic Development of Australia event in Melbourne. “If anything was to go wrong in the housing market it would have very severe impact on the viability and health of the banking system, so it’s naturally something we watch very carefully.”

…Mr Byres said APRA had recently released guidance for banks on how mortgage risks should be managed, and had asked the chairmen of the boards of the major banks to provide feedback on how they were monitoring risks to the economy of changes in ­lending standards.

“At this stage our message has been, ‘We’re watching very closely; we want to make sure you’re fully on top of what you’re doing,’ ” he said. “The competitive pressures are definitely there and that’s, generally speaking, a good thing. We just don’t want it to get too far out of whack.”
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Ex BP Golly
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Its like watching a car crash
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WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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o2sd
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Ex BP Golly
28 Jul 2014, 02:01 PM
Its like watching a car crash
They know where this is headed, but it seems nobody can stop the train.
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Count du Monet
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Even though a variety of "safeguards" (taxpayers pocket) have been built into the financial system, this only encourages financiers to crawl further out on the limb of risk.
The next trick of our glorious banks will be to charge us a fee for using net bank!!!
You are no longer customer, you are property!!!

Don't be SAUCY with me Bernaisse
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Drgonzo
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it is no different whether somebody borrows 80 percent or 100 percent, if they lose their job they will probably default. the chance of a default is no different on these loans, the risk is on the bank recovering any shortfall on foreclosure, which it has covered by being able to sell the guarantors property.

funny how there is all of this carry on about 95% loans to firsr home buyers yet nobody seems to give a shit that investors can fund multiplue purchases with no cash down and no job, apparently thats different?
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zaph
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Drgonzo
28 Jul 2014, 03:49 PM
funny how there is all of this carry on about 95% loans to firsr home buyers yet nobody seems to give a shit that investors can fund multiplue purchases with no cash down and no job, apparently thats different?
An investor with no job and no income would not be able to get a loan.

They would need income from some source (eg investments). Arguably, income from diversified sources would be more stable than employment income.
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miw
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Drgonzo
28 Jul 2014, 03:49 PM
it is no different whether somebody borrows 80 percent or 100 percent, if they lose their job they will probably default. the chance of a default is no different on these loans, the risk is on the bank recovering any shortfall on foreclosure, which it has covered by being able to sell the guarantors property.
100% agree about the chance of default. The lender will be applying the same serviceability criteria whether the loan is 80% or 100%. From a security perspective, they are no doubt taking the view that 100% loan with guarantor is as well-covered or better than a 90% or 95% loan without guarantor.

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funny how there is all of this carry on about 95% loans to firsr home buyers yet nobody seems to give a shit that investors can fund multiple purchases with no cash down and no job, apparently thats different?


Where do you get the idea that investors can fund multiple purchases with no cash down and no job? The banks apply exactly the same servicing criteria and security coverage criteria to investment loans these days. You still need to show that you have the income to both live and pay off *all* your debts and that the total LVR across loans is no greater than 80%. If you have no job, you can use nett rent as income at a significant write-down from current weekly rental, and you can also use equity in lieu of deposit. However, to make that fly you have to have a very large amount of equity indeed and be very positively geared to boot. If you had $2.5M worth of property and no debt you could probably swing it. Or $3M and $150k of debt. If you have no other source of income than rent, it is hard to persuade banks to extend you more credit.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
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peter fraser
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miw
28 Jul 2014, 04:27 PM
100% agree about the chance of default. The lender will be applying the same serviceability criteria whether the loan is 80% or 100%. From a security perspective, they are no doubt taking the view that 100% loan with guarantor is as well-covered or better than a 90% or 95% loan without guarantor.




Where do you get the idea that investors can fund multiple purchases with no cash down and no job? The banks apply exactly the same servicing criteria and security coverage criteria to investment loans these days. You still need to show that you have the income to both live and pay off *all* your debts and that the total LVR across loans is no greater than 80%. If you have no job, you can use nett rent as income at a significant write-down from current weekly rental, and you can also use equity in lieu of deposit. However, to make that fly you have to have a very large amount of equity indeed and be very positively geared to boot. If you had $2.5M worth of property and no debt you could probably swing it. Or $3M and $150k of debt. If you have no other source of income than rent, it is hard to persuade banks to extend you more credit.
+1 no income no loan. It's a simple rule but effective.
Any expressed market opinion is my own and is not to be taken as financial advice
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stinkbug
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miw
28 Jul 2014, 04:27 PM
The lender will be applying the same serviceability criteria whether the loan is 80% or 100%.


Spot on. This is about protecting the bank. The possibility of default by the borrower does not change due to having a deposit (or not).
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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o2sd
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Count du Monet
28 Jul 2014, 02:52 PM
Even though a variety of "safeguards" (taxpayers pocket) have been built into the financial system, this only encourages financiers to crawl further out on the limb of risk.
On the contrary, many 'guarantors' will have built up equity in their own home over a lifetime, which will become the bank's when junior defaults on their loan. This reduces the risk for the lender as the loan will be secured by two properties instead of one. It is Mom and Dad that gets to enjoy the risk of their children losing their jobs and them losing their home, while the bank makes bigger profits with less risk.

Cue cheersquad for this in 3 .... 2 ....
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