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So who can buy a house in Sydney for $1,076,000
Topic Started: 30 Oct 2016, 06:30 PM (4,807 Views)
Rufus
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Jon Snow
30 Oct 2016, 09:51 PM
High immigration from China of mostly poor people, and not always the whole family. It used to be that one parent would immigrate and get established then bring the child over to be educated/raised in HK, but it is becoming almost impossible to get established now, so many just leave their family in China and send money home to pay for a better school at home.

It will be interesting to see what happens with Hukuo reform in the next five years.
Weren't there quite a few Vietnamese as well as refugees from Laos & Cambodia etc from some decades back.
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Khaderbhai
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Rufus
30 Oct 2016, 08:06 PM
I don't see how this would not affect the rate of price growth at some point. As the rising market gradually excludes more and more buyers without any offsetting event such as a rate reduction, then it must have an effect.
Sure, it will come to an end at some stage, but I just think it can keep going for a while longer. By the way - if a borrower takes out a fixed rate loan, for example Westpac are offering 5 years fixed at 3.85%, do you know what assessment rate applies? None of the articles I've read about this mention fixed rates. Do they still assess based on 7%+ for fixed?

That 5-year fixed rate of 3.85% is quite tempting actually...

Quote:
 
I'm not aware that London/Manhattan/HK/Singapore have recently had similar limits placed on buyers in those cities.
Would be good to know what assessment rates apply overseas. Did some searching but couldn't find anything.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Rufus
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Khaderbhai
31 Oct 2016, 07:49 AM
Sure, it will come to an end at some stage, but I just think it can keep going for a while longer. By the way - if a borrower takes out a fixed rate loan, for example Westpac are offering 5 years fixed at 3.85%, do you know what assessment rate applies? None of the articles I've read about this mention fixed rates. Do they still assess based on 7%+ for fixed?

That 5-year fixed rate of 3.85% is quite tempting actually...
The deal fails on the Westpac calculator, regardless of whether it's a variable product or fixed.
It does pass on the St George calculator (Westpac subsidiary) but only just.
Quote:
 
Would be good to know what assessment rates apply overseas. Did some searching but couldn't find anything.


It's quite different in the USA where a borrower opts for a 30 year fixed loan. The interest rate can't vary although the borrower could opt to refinance at a lower rate if the opportunity presents. They may add in a buffer, but the buffer is more likely to be in the living costs rather than the interest rate in the USA.
Take risks - if you win you will become wealthy, if you lose you will become wise
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Foxy
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Zero is coming...

Rufus
30 Oct 2016, 06:30 PM
So who can buy a house in Sydney for $1,076,000

Along with everyone else I have been watching the house prices in Sydney rise and rise and rise, driven mostly by high demand and falling interest rates.

Falling interest rate drive loan repayments lower and thus when new buyers compare repayments to rents the repayments begin to look far more attractive in a market where rates are falling. In addition buyers can access higher loans as their serviceability position improves. Buyers who may have been locked out of buying because they couldn’t get a loan large enough for them to buy a house that satisfied their needs, suddenly find they can buy that house, and so they do.

It’s quite intuitive that when a large number of people who couldn’t previously afford a house, but suddenly can, it adds impetus to the market for a basic necessity such as housing.

So what’s different this time?
This time APRA have set a floor on the serviceability rate used to assess all loan applications. That means that all loan applications must be serviced at rates above 7.00% regardless of how low rates actually fall. Most lenders are servicing at rates higher than 7.15% with ING servicing at 8.00%. Had APRA not intervened some time ago with that floor, lenders would still be using an assessment rate about 1.5% to 1.75% above the borrowing rate. That means that lenders would be assessing loans at around 5.15% to 5.50% instead of 7.15% or more. That makes a huge difference to the number of buyers allowed into the market. APRA instituted this floor quite some time ago and there is no doubt that it will make the market more robust when we do see interest rate increases, whenever that may be.

What this floor on the assessment rate does is set a barrier to buyers in all markets in Australia, but in particular to buyers in our most expensive cities because that’s where the APRA floor will be stopping the most buyers entering the market. If rates fall any further, it won't make one iota of difference to peoples capacity to borrow larger amounts.

Markets such as Brisbane, Adelaide and Hobart are not affected greatly by the APRA assessment rate floor.

The caveats to this are:-
1.Foreign buyers who may be borrowing in overseas markets, or simply may not need to borrow at all. Australian banks have curbed their lending to this sector significantly, but it’s still an unknown factor as far as actual numbers go.
2.Investors who may be in a very strong financial position. APRA have also set limits on this sector of the market. I doubt that investors alone can keep the Sydney market levitated.
3.Buyers receiving assistance from family either in the form of cash gifts or family guarantees. I don’t see this as being a large enough segment to hold up the whole market, but it’s a factor.
4.SMSF borrowings – not significant enough to be a market price setter.

What do I need to get a bank loan near $1M
If we look at an Australian couple who might want to buy in Sydney for a price around the median of $1,076,000, what is the minimum that they would need to earn, and what is the minimum savings they would need to cover the deposit and costs?

I ran an imaginary scenario through my calculators for a couple with two young children. He earns $90,000 pa gross and she earns $75,000 pa gross, with no loans but they do have a total of $10,000 credit card limit, which is about normal for a couple these days. That’s a credit card each with just a $5000 limit. (For the more politically correct those incomes could be reversed, it makes no difference.

According to the serviceability calculators they can borrow 90% loan up to $968,000 absolute maximum with one of the big four. That would put them virtually at their dollar limit and the loan may not be approved, but it is within their theoretical limit. Their credit history and other risk indicators would need to be very strong. I have also assumed that they don’t have any private school fees, car loans etc. Also the income is assumed to be a salary, it does not include overtime, commissions or bonuses as they are not always included at 100% by all lenders.

In addition they would need the following in savings or family assistance at a minimum.

•Stamp duty and legals etc of $47,306
•A deposit of $107,600

Total required by buyers would be $160,000 which would leave just $4557 to cover incidentals such as moving costs and connection of utilities.

So to buy a house in Sydney for around the median price a household of two adults and two children and no other loans other than modest credit cards would need a combined income of $165,000 gross and savings of $160,000.

That’s a big ask for most young couples. Most simply don’t have that earning capacity, and nor do they have the savings. In the current lending climate if a loan doesn’t service, the lender can’t and won’t lend. There are people who claim they will, but experience tells me that isn’t so.

There are thousands of people in Sydney with higher incomes and larger savings, but how many of them haven’t yet bought?
How many people are there in this category who are waiting to buy?

What about 5% deposit loans?

Good question. The answer is that banks and mortgage insurers are very particular with high value high LVR loans, and mortgage insurers have a limit of $1M for these loans in Sydney. You can check that for yourself on the Genworth Underwriting Policy on page 5 (see link below)
For most postcodes the limit is lower. We have hit the limit for 95% loans in Sydney. Even 90% loans become quite hard to get when we rise above the $1M threshold, and the mortgage insurance cost is at nosebleed levels.
http://www.genworth.com.au/pdf/LMI%20Underwriting%20Guidelines%20(Australia)%20-%20(20161024)%20v1.0.pdf

I think the majority of people in Sydney who would like to buy a house are at peak borrowing capacity, or near to it, so exactly who is holding up the Sydney market, or can it be held up much longer? Basic maths are hard to beat.


Try Central Park New York.

Sydney is the place for people with money, full stop.

The rest are pretenders.

And pretenders pay to pretend.

So the price of Sydney property is neither expensive or cheap.

But to the individual it may be expensive or cheap.

Andrew Forrest could buy in Sydney at any price point as can Gina.

The young couple you speak about should not try to compete with the likes of them.

Go to any number of alternative locations around Australia or the world for that matter and settle down.

Chill man.



Edited by Foxy, 1 Nov 2016, 01:54 AM.
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Terry
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foxbat
31 Oct 2016, 12:56 PM
Try Central Park New York.

Sydney is the place for people with money, full stop.

The rest are pretenders.

And pretenders pay to pretend.

So the price of Sydney property is neither expensive or cheap.

But to the individual it may be expensive or cheap.

Andrew Forrest could buy in Sydney at any price point ask can Gina.

The young couple you speak about should not try to compete with the likes of them.

Go to any number of alternative locations around Australia or the world for that matter and settle down.

Chill man.


Hole in one Foxy.
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Ex BP Golly
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What's the average Sydney wage.

$80,000?

13 years wages just to pay of the capital.

Woo hoo!
WHAT WOULD EDDIE DO? MAAAATE!
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Khaderbhai
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Ex BP Golly
31 Oct 2016, 08:37 PM
13 years wages just to pay of the capital.
Better than 70+ years just to pay the rent.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Jon Snow
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Rufus
30 Oct 2016, 09:54 PM
Weren't there quite a few Vietnamese as well as refugees from Laos & Cambodia etc from some decades back.
It seemed like a lot, but really a drop in the bucket, and most of them either went back to Vietnam when the economy improved or immigrated to the West (Australia, UK, US). In the 90s there was a detention center/refugee camp that held tens of thousands, but for a city of 6.5 million, it wasn't a lot.

When the city was a British colony, there was migration from all over the Commonwealth, especially India. After handover, immigration was increasingly skewed to Mainland Chinese, with the exception of skilled migration in financial services. Now there are a surprising number of Hongkies moving to the mainland, especially those not in finance/banking.
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Foxy
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Zero is coming...

Ex BP Golly
31 Oct 2016, 08:37 PM
What's the average Sydney wage.

$80,000?

13 years wages just to pay of the capital.

Woo hoo!
Are we paying tax on that $80,000???
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Ex BP Golly
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Khaderbhai
31 Oct 2016, 09:05 PM
Better than 70+ years just to pay the rent.
Indeed.
But not as good as the long term average of around 4 times wages.

And even at that low level, the majority of people struggled to pay of their loans in their working life.

Do you think people in the future will be able to do so, or will they roll over their loan package into reverse mortgage mode?
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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