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Interest only loans are Australia’s subprime
Topic Started: 16 Oct 2014, 10:35 AM (11,223 Views)
miw
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Joxer
17 Oct 2014, 05:47 PM
Just so you know...

Australian banks are worth more than US banks with 14x the customers...

Australian banks, serving 24 million people... are worth more than Japanese banks serving 130 million in the 3rd largest economy in the world.

Go figure...

For example... The commonwealth banks, ANZ, NAB and Westpac, INDIVIDUALLY, take your pick, any of them are worth more than Goldman Sachs...

I mean, the commonwealth bank is worth more than Lloyds... so's westpac...

Hell, probably whats MOST disturbing... Wells Fargo & co. the LARGEST BANK IN THE WORLD, Working in an economy with population of 320, 000, 000 somehow is only worth double the commonwealth bank which works in an economy with 23, 000, 000....

How.... Whats wrong with those numbers...

Somehow having 14 houses in the US is worth less than having 1 house in Australia.

Just something to think about to anyone who thinks Australia is 'balanced'

Dont we have something like 60-70% Of all our economy tied up in housing now? lol

Most places only have around 20-30%

Thats going to end GREAT

http://www.relbanks.com/worlds-top-banks/market-cap

Anyone who doesn't think Australia is lined up for a collapse of titanic proportions and thinks getting more people to dive into the housing with more grants more bonuses more tax exemptions is a good thing... well quite frankly... they are mentally retarded.
So........

The general consensus of the real people who do their homework and put their money where their mouth is, is that the Australian Big 4 banks are likely to deliver more in the way of dividends than the Japanese banks in the future.

Seems like a vote of confidence in their future profitability rather than a sign of imminent collapse to me.....
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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Veritas
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miw
17 Oct 2014, 06:48 PM
So........

The general consensus of the real people who do their homework and put their money where their mouth is, is that the Australian Big 4 banks are likely to deliver more in the way of dividends than the Japanese banks in the future.

Seems like a vote of confidence in their future profitability rather than a sign of imminent collapse to me.....
Yep.

Posted Image
Edited by Veritas, 17 Oct 2014, 07:29 PM.
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
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miw
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Veritas
17 Oct 2014, 07:29 PM
Yep.

Posted Image
And your point is? Is that a prediction, or is it just your usual noise?
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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stinkbug
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Interest only loans are nothing like sub prime loans. They are not equivalent.

This thread is ridiculous.
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stinkbug
17 Oct 2014, 07:36 PM
Interest only loans are nothing like sub prime loans. They are not equivalent.

This thread is ridiculous.
Just the comments I would expect from you stinky.

Because in your case, you have near a dozen subprime mortgages, all on ovepriced property, and all in canberra, where you have a dozen properties now declining in rent and probably value too by now. What is the shortfall on twelve properties declining in rent, how much do you need to make up with the latest stats showing declines of over 8% yoy, on top of previous reported yearly declines. If prices drop by 20%, you will be down over half a million stinky.

So of course you would dismiss this thread as ridiculous.
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stinkbug
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17 Oct 2014, 08:02 PM
Just the comments I would expect from you stinky.

Because in your case, you have near a dozen subprime mortgages, all on ovepriced property, and all in canberra, where you have a dozen properties now declining in rent and probably value too by now. What is the shortfall on twelve properties declining in rent, how much do you need to make up with the latest stats showing declines of over 8% yoy, on top of previous reported yearly declines. If prices drop by 20%, you will be down over half a million stinky.

So of course you would dismiss this thread as ridiculous.
More made up shit. Sadly, the typicaly bear response here nowadays.
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Veritas
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miw
17 Oct 2014, 07:32 PM
And your point is? Is that a prediction, or is it just your usual noise?
Merely making the point that past and indeed present performance is no indicator of future performance.

You are suggesting otherwise.

By your logic Anglo was the most super dooper bank in the world because thats where " the money where their mouth is" folk had theirs.
stinkbug
17 Oct 2014, 07:36 PM
Interest only loans are nothing like sub prime loans. They are not equivalent.

This thread is ridiculous.
It can be; depends on the borrower.

Why would you need one?
Edited by Veritas, 18 Oct 2014, 02:43 AM.
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
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miw
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Veritas
18 Oct 2014, 02:42 AM
Merely making the point that past and indeed present performance is no indicator of future performance.

You are suggesting otherwise.
I was not suggesting otherwise at all. Just pointing out that a high market capitalisation is a sign of health, not the opposite.

The best guess for what a stock price will be in 12 months' time or three years' or ten years' time is exactly the price it is today, modified by the current risk-free interest rate. In that sense, the current market capitalisation is the best and in fact the only indication of future market capitalisation.
The truth will set you free. But first, it will piss you off.
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More home owners taking out risky interest-only loans: Moodys

Jennifer Duke | 30 October 2014

The latest Structured Thinking Asia Pacific report from Moodys has pointed to the increased number of Australian owner occupier home buyers taking out interest only mortgages and the risks inherent in this decision.

Assistant vice president – analyst for Moodys, Alena Chen, noted that it is particularly credit negative for future Australian Residential Mortgage Backed Securities as these loans have a higher risk of delinquency and default.

This is particularly the case in today’s low interest rate environment with the expectation that rates will head north in 2015.

“Over the past year, a notable rise has occurred in the amount of IO loans in Australia and owner-occupiers -- people who buy a home to live in, as opposed to investors who buy to rent out -- are accounting for a growing share of these loans,” explained Chen.

While interest only loans are common among Australian investors due to the ability to claim the interest costs as a tax deduction, home owners are unable to make these same claims.

“There are concerns that many of the owner-occupiers taking out these loans -- which are generally larger than the traditional Principal and Interest loans -- would consequently find it difficult to service them if interest rates start to rise,” she said.

In June 2014, the Australian Prudential Regulation Authority recorded that interest only loans accounted for 43.2% of all new mortgages, up from 38.6% in the corresponding 2013 period.

During this period, the proportion of loans for investment properties also rose to 37.9% from 35.2%. But the rise was not as prominent as that seen in the interest only loan growth, which suggests that more owner occupiers are opting for interest only loans.

“Interest only loans, whether they are for owner-occupiers or real estate investors, generally carry a greater risk of delinquencies and default than traditional principal and interest loans,” Chen said.

“In particular, interest only loans are more sensitive to interest rate rises than PI loans because of their larger amounts and slower amortization rates.”

They are particularly sensitive upon reverting to being a principal and interest loan and payments subsequently rise – usually five to 10 years later.

With current record low interest rates, the delinquency rate for interest only loans is lower than principal and interest loans.

“This situation reflects the fact that monthly repayments for interest only loans are lower than principal and interest loans. However, our expectation is that interest rates in Australia will rise in 2015, putting more pressure on interest only borrowers and resulting in greater levels of delinquencies and defaults,” she said.

“Real estate investors in Australia can claim a tax deduction for the interest costs of their loans, which will help offset the impact of higher rates. However, owner-occupiers are not eligible for such deductions.”

With this in mind, it will be owner occupiers that feel any increase in rates most severely, rather than investors.

Read more: http://www.propertyobserver.com.au/financing/loans-and-mortgages/37291-more-home-owners-taking-out-risky-interest-only-loans-moodys.html
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stinkbug
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Veritas
18 Oct 2014, 02:42 AM


Why would you need one?
To improve your tax position. Why pay down all your loans evenly when you can focus on the non-deductible debt?
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