Yes. The assumption is greater gross debt to income (or GDP) means loan quality must be deteriorating (on average). It is a reasonable assumption - but an assumption nonetheless.
It is something he should highlight - but that wouldn't make a good news story for the masses. Lucky no-one here falls for it.......
I would go along with that assumption if we still had asset based lending and loans sensitized the old way at 1.5% above the lending rate, but we don't. There are no asset lends anymore and all loans are sensitized way above market rates, 3% to 4% in many cases.
Take risks - if you win you will become wealthy, if you lose you will become wise
Why will the bubble "pop" terry? Does debt just pop on it's own, or maybe loan quality has something to do with it?
Funny that.
Loan quality is not as simple as the mortgagee and their circumstances at the time of the loan. Loans in Australia look quite good under current circumstances, you have IR rise 1.5-2% in a short period e.g. 12-15 months and it would be carnage. Given the current levels of household debt and the sheer size and volumes of debt per person these 'good quality' loans would look like and smell like steaming turds.
Loan quality isn't just as simple as the subprime we saw on the US, rather than borrowers creating the issue through lower than market average IR that revert to very high IR 2-3ys down the track global circumstances and pressure on our IR will mimic this reversion here. It's not subprime but if IR rise it will have exactly the same effect.
Rufus
9 Jan 2017, 08:11 PM
I would go along with that assumption if we still had asset based lending and loans sensitized the old way at 1.5% above the lending rate, but we don't. There are no asset lends anymore and all loans are sensitized way above market rates, 3% to 4% in many cases.
3-4%, that is an absolute lie Pete.
3-4% means approximately $500-1000 more per month on a $500K loan and I know for a fact this is not the case.
To have the average debt levels per capita that we currently hold it is clear most people are stretched to their absolute limit and in an environment of extremely low IR. even a 3% would see an firestorm run through the housing market in Australia and you know this.
3-4% means approximately $500-1000 more per month on a $500K loan and I know for a fact this is not the case.
To have the average debt levels per capita that we currently hold it is clear most people are stretched to their absolute limit and in an environment of extremely low IR. even a 3% would see an firestorm run through the housing market in Australia and you know this.
"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."
Your lack of knowledge about the market is typical for bears, and it's why you guys have been miscalling the market for so long.
You just blindly believe the nonsense spouted on blogs like Macrobusiness and make no effort to find out what's really going on.
Even now that we've shown you the banks assess at 7-8%, you'll probably just refuse to believe it and go on expecting a crash based on "bad loan quality".
Roddy makes the same sort of mistakes all the time, and he's been getting it wrong for a decade now.
"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."
Great stuff Roddy. Is it like the movie Inception? How deep does this thing go? Yep, Peter is correct. Chris has no clue whatsoever. Current mortgage rates are around 4% but the banks assess at 7-8%...
There's a secret mortgage rate that banks use but don't disclose to customers.
The official cash rate is now 2 per cent and most mortgages are about the 4-5 per cent mark.
But that's not the rate lenders use when assessing your application for a home loan.
Instead, they use a benchmark assessment interest rate that measures your ability to pay the loan if rates increase to a certain level.
Most lenders keep this rate hidden, but my sources say it currently varies from 7.2 per cent at the lower end to 8 per cent at the upper end.
Extremely deceptive because it is based on one person using one loan calculator on a banks website, it is not indicative of bank practises when actually borrowing. If mortgages we assessed at 7% you would have a very different housing market in this country.
You show me proof one bank stress tests loans to mortgagees for a residential loan at 7%.
f*** this is amateur hour
Chris most banks are insisting that borrowers service at between 7.15% to 7.4% and ING has never dropped below 8%. I know one small non bank lender using 7% and that's the lowest I've seen.
This is an APRA requirement, and they are auditing bank lending.
They all stress test above 7% Chris. Why would anyone lie to you about that.
Take risks - if you win you will become wealthy, if you lose you will become wise
"loan affordability tests for new borrowers — in APRA’s view, these should incorporate an interest rate buffer of at least 2 per cent above the loan product rate, and a floor lending rate of at least 7 per cent, when assessing borrowers’ ability to service their loans. Good practice would be to maintain a buffer and floor rate comfortably above these levels."
"APRA's 2014 hypothetical borrower exercise found such buffers wanting at many institutions, but last year's survey showed all institutions at least complying with the minimum 7 per cent interest rate required by APRA."
Chris
9 Jan 2017, 09:04 PM
Extremely deceptive because it is based on one person using one loan calculator on a banks website, it is not indicative of bank practises when actually borrowing. If mortgages we assessed at 7% you would have a very different housing market in this country.
More deception and lies from the shadow camp.
You just don't know what you are talking about. Clearly the housing market isn't anything like you think.
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