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 guaran hard to persuade banks to extend you more credit.
I think the banks think its about c.90% better than that MIW!
Especially if mom and pop own their home outright.
Great leverage for the banks to pressure givernment if too many folk think that they might lose their home as well.
WHAT WOULD EDDIE DO? MAAAATE! Share a cot with Milton?
There is a difference between having a job and an income, I wouldn't consider property investing "a job"
Not sure what your point is here. Lenders care about income and security. They don't give a shit about your personal values on what does or does not constitute a "job". Not sure that anyone does, actually.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
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 ....
Why would such a product exist if
a) Affordability problems for FTBs is real b) Banks need to compete for greater fools.
If all was rosy in the garden, there would be no demand for this product.
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
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.
thats actually not true mate i found out the other day from a friend of mine with ties to some of the big boys at the major banks.
Hes got quite a large portfolio of property presently and just started a mortgage broking business, and hes telling me now that your own income no longer matters for investment properties, servicing is all to do with rental income which apparently is not well known. I mean thats how it should be since your not really servicing it anyways.
Hes also told me that you can get quite favourable terms with next to nothing down and miniscule income.
Drgonzo
28 Jul 2014, 07:44 PM
There is a difference between having a job and an income, I wouldn't consider property investing "a job"
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 ....
Not sure where to start here.....
The banks are becoming more and more desperate, not only in obtaining future loans for fhb but in their exposure to debt risk and defaults throught further economic decline.
Before I go on , I will say that the banks have been building in their own destruction for years. They are their own worst enemy when it comes to growth in future, draining all the blood now so there will be dome left later. Biting the hand that feeds it.
So what do they do now. Devise a new plan. One where they can entice more fhbs onto the books who have no deposit at all. The latest rams add shows it. The young girl is talking about how she has saved 5% deposit or is saving 5% deposit, but now her parents can go guarantor and she can put down even less is what she says, but does not say how much, seems like its zero% now. The overvoice then goes on to say , it pays to be nice to your parents or some bs. So now theor saying you need wealthy parents to own your home, to bad for anybody else.
But the plan is also for the banks to reduce their risk and exposure to the property market. If a lone fhb with no guarantor has pit down 5%, if they lose their job and the property markets drops 20% and the property defaults, the bank is left short. The owner could claim bankruptcy.
So to fix these two problems, we will use this new rort and in doing so expose the parents to the risk and not us the banks, we know the fhb will have not chance once they lose their job, and if property starts deeclining we can lump it on the parents and sell their house to get back any shortfalls.
So in effect the parents are taking out a loan for their child and hoping they will keep their job to pay for it for the next 25-40 years. Lumber all the risk onto somebody who has capital we can claim back behond any shortfalls instead of let them relax and enjoy their retirement instead of take on more extreme risk and risk losing their own home as well as the child's new one.
We see that other TV add, where the guys says something like, did you what it is like to know I can afford an investment property. The scene then changes from boring and drab to one with people and party and lights, what absolute fcn delusion are they portraying and encouraging here. Why don't they paint the future picture, where they eat baked beans until they lose there job and can't find another job. The banks hounding for payments, the scene goes dark and scary, we won't ever see this one, just the fantasy delusion.
Put down next to nothing, the rent only covers the bank interest which is all they are paying and can afford to pay , while forking out for the outgoings and maintenance and Insurance and think they are getting some tax advantages. All in the hope that the property will double in value over seven years and rents will surge. The banks have learnt how to suck every last cent from you people over much much longer periods of time.
The banks have a $380 billion dollar bailout facility provided by the generous tax payer, or approx an amount of $15,000 for each man, woman, child in Australia.
a) Affordability problems for FTBs is real b) Banks need to compete for greater fools.
If all was rosy in the garden, there would be no demand for this product.
It's a simple use of a guarantee. Guarantees have existed since forever.
Access to credit does not drive prices, it's secondary. What credit does is give people access to money to buy things. If those things are necessities and they are in short supply then people will use that access to outbid others who also want to buy, but by itself credit is not a problem.
Until people grasp the main issue which is a supply shortage in a growing market they will never come to grips with the solution.
The other issue is input costs levied by our three levels of government. Those costs can't be taken out of the price, it's how we pay our taxes. Our houses will always be higher than comparative houses overseas due to those input costs. Overseas the same costs are often taxed retrospectively, but they are still charged. Communities that want roads, schools, parks and amenities have to pay for them. It's really that simple.
Any expressed market opinion is my own and is not to be taken as financial advice
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