Australia's growing subprime mortgage market. 43% of new loans are interest only.; Australian lenders dole out $3 billion worth of non-conforming home loans in 18 months
Tweet Topic Started: 27 Aug 2014, 09:26 AM (2,929 Views)
I think that Martin North was correct with his analysis, he said -
I would advise all of my investors to take their loans as interest only for their IP's unless they were boomers, but really there are very few boomers in the market with large loans. They are mostly at the end of their accumulation phase although some may be rejigging their portfolios.
Investors are often drawing equity out of their PPOR and I would advise them to take that loan out as I/O as well and pump every dollar that they have into their PPOR offset account or into the PPOR loan itself.
For a non-investor buying a PPOR I would always try to set that up as a P&I loan although some nervous PPOR buyers ask for the initial year or two as I/O so that they can bed the loan down and get ahead in repayments to get a buffer established.
If we could drill down into the data and there was a high proportion of PPOR buyers with I/O loans I would be concerned, but I doubt if that's the case based on my own experience and discussions with banks that I deal with. BTW most I/O loans have a max term of 5 years and after that they revert to P&I unless they were set up as a LOC - not many of them these days.
An investor can get an I/O term reset quite easily subject to good loan conduct, but if the loan was for a PPOR buyer often the banks insist on it reverting to P&I. The banks position will depend largely on the age of the borrower and the loan conduct. If the borrower is still young and the loan has been well conducted the bank will usually accommodate a further term of I/O.
Does that make sense to you? Lots of jargon.
yes, thanks for the info Pete.
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
I have often wondered how it is that Australia’s politico-housing complex will end. It has led a charmed life and proven remarkably innovative as well. But there is only so long that a nation’s elder generation can gorge open-mouthed upon the plump flesh of its young before they, or some rare ethical elder, fights back. Most of us are parents after all, and baby meat don’t taste so good when it’s your own progeny.
Some readers argue that it will end in a great and cleansing crash. I can see that having some benefits, though I worry about the experience of the UK, the closest comparable context, which showed that a crash unleashes hitherto undreamt policy extremes to revive the cancer. Even so , it must be said, it is still dying.
My central thesis has been that it will take a political shift to destroy the great choking goiter. On that, I’ve mused that an Australian Youth Party based upon liberal principles could restore market discipline to the housing market and economy more widely.
Though nothing has come of that, another interesting phenomenon is transpiring that suggests the end of the complex is approaching, whether via a controlled reform or disorder. Pressure is rising within the polito-housing complex itself from political actors, some deliberately and others unwittingly.
Consider. Just now we are embarked upon a generational financial inquiry. I have been hard upon its leaders, David Murray especially, but his public appearances and utterances have been convincingly dedicated to restoring resilience to the financial system, rather than the politico-housing complex narrative of funding future growth, perpetuated largely by the banks. The only way to restore resilience is to dramatically increase capital levels and that, by definition, means less lending. If Murray and his team deliver it will be a major step forward in reforming the bubble away, though the inquiry and any subsequent regulatory and legislative change are two very different things.
Even more interesting and unsettling, the vicissitudes of democracy are shoving the complex towards a disorderly end in a peculiar parliamentary mix that is no longer able to bulwark key bubble supports.
The Government has embarked upon a campaign of Budget repair that is designed to boost the complex by ensuring that public bank guarantees are sound. However, even if it doesn’t understand the economics, the senate can see the extraordinary unfairness in the Budget and won’t let it pass. The impasse has reached a point so worrying that the four major bank economists feel it necessary to take the extraordinary step of appearing together at the national business daily to hose down concerns about the politics and existence of the bubble, which are in fact the same thing. One can only wonder at what dark whispers among the foreign investors that fund the complex have triggered this Megabank display.
The irony is that the only thing that Megabank has achieved is to underline the fundamental problem. If the Government tries to repair the Budget, it tightens the growth straight jacket so much that households are spooked and the bubble is threatened. If Budget repair is to be adjusted for fairness, it must tackle key bubble supports like tax expenditures, undermining its very purpose. If the senate prevails and no fiscal tightening is achieved, the lack of Budget repair ensures that Australia enters the next external shock with insufficient fiscal fire power to guarantee and bail out the banks.
The politco-housing complex has turned upon itself and whether by benign design or malign neglect it’s Waterloo is coming.
I have often wondered how it is that Australia’s politico-housing complex will end. It has led a charmed life and proven remarkably innovative as well. But there is only so long that a nation’s elder generation can gorge open-mouthed upon the plump flesh of its young before they, or some rare ethical elder, fights back. Most of us are parents after all, and baby meat don’t taste so good when it’s your own progeny.
Some readers argue that it will end in a great and cleansing crash. I can see that having some benefits, though I worry about the experience of the UK, the closest comparable context, which showed that a crash unleashes hitherto undreamt policy extremes to revive the cancer. Even so , it must be said, it is still dying.
My central thesis has been that it will take a political shift to destroy the great choking goiter. On that, I’ve mused that an Australian Youth Party based upon liberal principles could restore market discipline to the housing market and economy more widely.
Though nothing has come of that, another interesting phenomenon is transpiring that suggests the end of the complex is approaching, whether via a controlled reform or disorder. Pressure is rising within the polito-housing complex itself from political actors, some deliberately and others unwittingly.
Consider. Just now we are embarked upon a generational financial inquiry. I have been hard upon its leaders, David Murray especially, but his public appearances and utterances have been convincingly dedicated to restoring resilience to the financial system, rather than the politico-housing complex narrative of funding future growth, perpetuated largely by the banks. The only way to restore resilience is to dramatically increase capital levels and that, by definition, means less lending. If Murray and his team deliver it will be a major step forward in reforming the bubble away, though the inquiry and any subsequent regulatory and legislative change are two very different things.
Even more interesting and unsettling, the vicissitudes of democracy are shoving the complex towards a disorderly end in a peculiar parliamentary mix that is no longer able to bulwark key bubble supports.
The Government has embarked upon a campaign of Budget repair that is designed to boost the complex by ensuring that public bank guarantees are sound. However, even if it doesn’t understand the economics, the senate can see the extraordinary unfairness in the Budget and won’t let it pass. The impasse has reached a point so worrying that the four major bank economists feel it necessary to take the extraordinary step of appearing together at the national business daily to hose down concerns about the politics and existence of the bubble, which are in fact the same thing. One can only wonder at what dark whispers among the foreign investors that fund the complex have triggered this Megabank display.
The irony is that the only thing that Megabank has achieved is to underline the fundamental problem. If the Government tries to repair the Budget, it tightens the growth straight jacket so much that households are spooked and the bubble is threatened. If Budget repair is to be adjusted for fairness, it must tackle key bubble supports like tax expenditures, undermining its very purpose. If the senate prevails and no fiscal tightening is achieved, the lack of Budget repair ensures that Australia enters the next external shock with insufficient fiscal fire power to guarantee and bail out the banks.
The politco-housing complex has turned upon itself and whether by benign design or malign neglect it’s Waterloo is coming.
I assume that this is the David LS article from MB.
I find this writing style to be far too laboured to be bothered, and what I did decipher was just a whinge with little or no facts to back it up.
Any expressed market opinion is my own and is not to be taken as financial advice
Because some people will pay good money to be told they were smart for not buying their homes in 2008 (even if they are being told by a homeowner)
Vested Interests who lie in order to pump a housing ponzi that little bit further, as jobs and the economy decline on a scale never seen before in Australia, shown clearly in the closure of the motor Industry, something that all other collapsing western nations have not faced. But like they say.......
Its different here, sure is, we did EVRYTHING possible to pump a housing ponzi, while doing NOTHING whatsoever to deal with our collapsing jobs, buisinesses and economy.
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