Slower Housing Credit Growth: Fitch Ratings expects a slowing of housing credit growth and, potentially, a stabilisation in household debt levels as wage increases ease and unemployment rises. Risks in the Australian banking system would rise if house prices were to continue their strong growth of 2013 and 2014.
Credit Boosted Price Gains: The availability of credit is one of many factors responsible for the spike in Australian house-price appreciation during 2013 and 2014. Competition for new mortgages has been fierce among banks, helped by record low interest rates; still, credit standards appear to have been broadly maintained and mortgage rates remains the main competitive outlet. Other factors include immigration, better infrastructure in the popular cities, rising foreign investment, and higher borrowing limits for self-managed superannuation funds.
Risk Appetite Growing: Mortgage growth has been strongest in potentially higher-risk segments – investor loans and interest-only loans. The former is probably a result of low interest rates and brings a speculative element to recent house-price appreciation; the latter is in part driven by the growth in investor loans, which benefit from tax-deductible interest payments.
Historical Data Belie Risks: Investment mortgages are likely to experience higher arrears and loss rates than owner-occupier mortgages in a significant downturn; that’s despite bank data that suggest the difference in performance has been negligible since 2008. The relatively benign economic environment over the past 20 years is not a realistic basis upon which to estimate how investor loans would fare in a downturn.
Owner-Occupiers Pursue Interest-Only Loans: The increased use of interest-only loans by owner-occupiers may leave weaker borrowers vulnerable to rising interest rates. Australian banks offset some of the risk by testing loan serviceability at higher interest rates. The factors behind the rise in owner-occupier interest-only loans are less clear and could be numerous as interest payments are not tax deductible, unlike investment loans.
Regulators Increasing Focus: Bank regulators are becoming more vocal on the housing sector risks, and intervention appears increasingly likely. The Reserve Bank of Australia has publicly discussed several macroprudential tools, while the interim report of the financial system inquiry has put forward a number of possible actions to lower risks in the household sector.
Significant Losses Still Remote: Fitch believes significant losses in the mortgage books of Australian banks are unlikely despite the increase in risk during 2013 and 2014. The mortgage portfolios are well seasoned and benefit from relatively conservative underwriting. Losses would be more likely to emerge from commercial loan portfolios in a significant downturn.
Almost every new investment loan uses the interest only option for the initial term of 5 years, then it reverts to P&I or it can be extended for another set period of up to 5 years I/O at the lenders discretion.
There are actually very few true I/O evergreen loans taken out in Australia.
Any expressed market opinion is my own and is not to be taken as financial advice
No I don't see it either, yet DLS summarised it thus -
Cutting through the guff, interest only and investment loans are Australia’s subprime accident in the making.
That is the worst piece of 100% BS I have read in a long time.
Complete desperation.
I think it is quite a legitimate thought piece that highlights vulnerabilities in the system.
Just because a large portion of your living is based on putting people into IO loans for investment doesn't mean it's bullshit. It also dispells the myth Bulls enforce that IP that are NG with io loans are not tax avoidance /bleeding schemes. You don't go IO NG unless you want the most amount of deduction available, to have the taxpayer pickup as much of the tab as is allowed, in essence suck the well dry.
I think the article is valid and that your vested interests might be clouding your judgement?
I think it is quite a legitimate thought piece that highlights vulnerabilities in the system.
Just because a large portion of your living is based on putting people into IO loans for investment doesn't mean it's bullshit. It also dispells the myth Bulls enforce that IP that are NG with io loans are not tax avoidance /bleeding schemes. You don't go IO NG unless you want the most amount of deduction available, to have the taxpayer pickup as much of the tab as is allowed, in essence suck the well dry.
I think the article is valid and that your vested interests might be clouding your judgement?
Total nonsense. I am not able to negative gear anything, yet I use some IO loans.
Tax had absolutely no role to play in my decision to go IO on those loans.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
I think it is quite a legitimate thought piece that highlights vulnerabilities in the system.
Just because a large portion of your living is based on putting people into IO loans for investment doesn't mean it's bullshit. It also dispells the myth Bulls enforce that IP that are NG with io loans are not tax avoidance /bleeding schemes. You don't go IO NG unless you want the most amount of deduction available, to have the taxpayer pickup as much of the tab as is allowed, in essence suck the well dry.
I think the article is valid and that your vested interests might be clouding your judgement?
If we had I/O loans that remained I/O for the full term of the loan and were then payable in full on the last day of the 30 year term I would be concerned. That is what is available in many countries.
LOC's aside, the policy of the CBA for example is that PPOR loans can only be I/O for a maximum of 10 years then the debt has to be paid off over the remaining 20 years, and investment loans can only be I/O for a maximum of 15 years, with the debt then payable over the remaining 30 year term.
DLS obviously thinks that our I/O loans are the same as the UK I/O loans, but clearly they are not. The loans being recorded as I/O loans in the stats, are the Australian version of I/O loans, not the UK version. the numbers might be high, but the level of risk is not.
Any expressed market opinion is my own and is not to be taken as financial advice
Almost every new investment loan uses the interest only option for the initial term of 5 years, then it reverts to P&I or it can be extended for another set period of up to 5 years I/O at the lenders discretion.
There are actually very few true I/O evergreen loans taken out in Australia.
Almost every new investment loan. No surprises here.
Evergreen loans. Who are you kidding here ? Why even pretend people would assume such bullshit that loans are to never be repaid here. Are you trying to divert from the artical by pretending everybody here is some kind of idiot.
They are saying here in the artical, that there is a shitload of growing numbers of people paying Interest only loans NOW, not only investors but owner occupiers too. Nothing at all Peter about one day we all know it needs to be paid off one way or the other, thats not the point, nothing at all to do with it, in anyway whatsoever. Its just about the FACT , that there is and has been a surging number of borrowers,both investors and owner occupiers now paying Interest only loans, and paying nothing at all off the debt.
Again Peter, NOTHING AT ALL to do with how long they choose to pay Interest only loans, or the fact most people realize that yes Peter it needs to be paid for eventually.
Why do you bring this bullshit up, time and time again. It has nothing to do with anything at all, we all know this Peter.
Its like telling people , they need to wipe their arse after shitting....... We know this Peter, and it has nothing to do with anything, they did not mention anything about never ending loans that you take to the grave Peter, because they don't want to take everybody for a fool and even suggest such a thing, not to mention be made to look like one for even suggesting it.
No I don't see it either, yet DLS summarised it thus -
Cutting through the guff, interest only and investment loans are Australia’s subprime accident in the making.
That is the worst piece of 100% BS I have read in a long time.
Complete desperation.
No , of course you don't see it Peter , your hands are plastered across your eyes . It is common sense , same subprime practices copied directly from the book of US economics for morons.
But somehow you can claim its the worst piece of 100% bullshit you have read in a long time.
Perhaps you should have a look over your own posts before jumping to such conclusions Peter.
And then your last comment,'complete desperation'. That is you Peter, they have nothing to gain by making such statements, just speaking the facts, that a growing shitload of investors and owner occupiers and now paying interest only loans, just like in the US and euro, right before it crashed along with the economy, and is still going backwards ,seven years later..................
But of course you know better, than people that report on economics,and in this case , with no vested interest.
Surely a leveraged to the eyeballs ex truck driver with a very huge vested interest in an extremely vulnerable position paying interest only loans is the one to listen too.......
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