Mortgage Crunch for Australian Landlords?

As housing values thaw across Australia, so does the dreams of a nest egg built on a housing bubble.
Australian real estate has avoided the mass loss of property values seen in the US and the UK, partly because Australia's economy was sheltered from the problems of the US lead GFC.

Better banking regulations and less credit to sub prime lenders saved Australia

In Australia we did not see the shonky lending practices that allowed people to buy homes they could not afford, and then refinance on the ballooning growth of their asset to make the repayments and buy cars and such till the music stopped.
So the music didn't stop suddenly like it did in the US. But property values in most capital cities are heading south, and look to be lower for many years to come. [in the US they say that is a whole generation, which is 30 years, because nobody will believe that property is a good investment in the US after what was allowed to happen over there.]

Two recent RBA interest rate drops in a month have not encouraged home buyers to invest in a home. They have seen values shrink and know there may be carnage ahead. The mum and dad property investor and landlord.

Trouble ahead for Australian Property Investors.
It is estimated that there are 1.7 million landlords in Australia, and most have wagered their own homes on property values rising.

Formula for success or homelessness?

1. The idea was that you have equity in your home, and you use that as the deposit on the next property. 
2. You then get a five year interest only loan [to minimise repayments and maximise the tax offset of those repayments.] Works a charm when homes prices rise. 
3. But like all leveraged investment, they can spell doom if values go against you longer than you can hold out. If property values fall continuously it will all go pear shaped for property investors.

For the mum and dad property investor that means as long as you both have jobs, [the can meet the repayments], and as long as the loan does not have to be refinanced. This is where its going to hit the fan in my view. Here's the thing. As long as these landlords can refinance, they are safe.

The Euro could be the last straw that breaks the back of the Australian property market
If the Euro crisis does not end well, we should expect the worst, because we would be in for a credit squeeze. The banks will then refuse border line loans, and that will send properties falling further. As these values were the basis on which the loans were first made, if these values don't stack up, then these Landlords will be forced to sell or find or funding from non bank lenders.
If we in the non bank mortgage industry can't find the finance, then property will flood the market.

So this is the thin edge for property investors in Australia's housing market.

And here's the real reason that this property values are likely to tank.
Australia's home values have risen far beyond what's affordable for Australian homeowners and home buyers since the 1980's.
What has happened is that as the wife went to work her wages were snaffled to be part of the affordability of home buyers.
This in my view is what has caused the housing inflation. The winners were real estate agents who got to drive "mercs" and "bemmers", and the banks who got to serve to mega loans. The losers were all those who got a 30 year mortgage based on two incomes, because that meant you could pay more than you could have before.
House prices and salaries: The gap
Housing affordability and credit guidelines have gone from 30% of the average Joe's gross wages on a twenty year mortgage, to 40% of Joe and Joe's partners wages on a 30 year mortgage! Some people are paying 50% of their wages before tax. The solution? Get more credit in the shape of a credit card!

So in real terms homes cost double what they used to. And we have the credit to pay for all this! Thanks for that!

That's why the US experts keep saying that Australian home values will fall 40%. If economists were running the housing market, this what the price drops would look like.
But they don't. However we must factor in their savvy, and the fact that the Australian Government may be paying attention.

So I feel that the values may have 20% still to fall, and that is if it does not get real ugly in Europe. 

If it does then banks will shut the lending gates and the amount of loans that they will be able to do will shrink. That mean less buyers and more property.
Can you here the sound of a distant Property Crash getting closer?

2012 should be the year Australians, get their credit cards paid out, their car loans paid off, and get a 100% mortgage offset account home loan that allows them to stash their savings against their mortgage, helping to pay it off sooner, and also having the cash their for a rainy day.

Source: Rick Adlam, Mr Mortgage

Australian Mortgages: Happened in 2011?

Australian Mortgages in 2011 from the rear view mirror

The fact that Australian mortgage delinquencies have declined in the third quarter in Australia points to the fact that the worst of mortgage stress may be over.

The return of the saver, and the virtue of saving

This year has seen more Australian households reining in their expenditures, and the biggest fatality of all this is the credit card. Australians seem to be shunning credit card debt like the plague as well as mortgage debt. This year has been credit card debt reduction as the biggest shift to saving has occurred.
That has to be a good thing for everyone, except retailers who have been milking Australians with over priced goods for generations.

The rise and rise of online sales

This year we have seen online sales surge to the point of critical mass, as Australians are starting buy online in a big way, and that has to mean better retail pricing and services in 2012. Even grumpy old Gerry Harvey has capitulated, and has online offers. [Not convinced Gerry, Sorry] If you want to buy superceded stock at new retail prices, shop Harvey Norman is may motto. His ads can shout at me all they like. I have only ever bought duds from Gerry. THat's why I never shop there anymore. But there is a suckerborn every minute, right Gerry?

The 2011 Christmas shopping season

This is one reason I feel that Christmas is going to be challenging for retail. Spending money you are yet to earn is becoming very unwise to savvy Australian shoppers, and those waiting for the Christmas sales to spend their holiday wages are being tempted with ever more attractive pre Christmas sales. And our high dollar means overseas spenders are less likely to come, and have less money to spend if they get here. At the same time cashed up Aussies are flying out and spending on holidays and spending their money overseas. But Australians know that the family home is more important than tinsel and glitter, and so only people with cash in hand seem to be shopping these days.

The banks are a multi-channel money machine

The banks however are doing OK, despite the loss of credit card revenues, and that is due to business loans growing to replace the shrinkage in credit card debt and home mortgage loans applications, which continue to fall away.
So mortgage delinquencies may have fallen, which is good for the banks, but that does not mean that new people want to be roped into 30 years of debt, so we are seeing a fall in housing prices in all capital cities, as interest rates fall and wages rise.

Did Real Estate become a Ponzi Scheme? I think so.

The combination of rising wages, full employment, lowering mortgage rates and falling house prices tells me that Australians have learnt the lesson from the US finance collapse. That Real estate prices can and do get ahead of themselves and must eventually collapse when they grow out of kilter with the wages and supply.
In this respect I feel that real estate price growth has been a massive Ponzi scheme, and that has deflated slowly in Australia, unlike what has occured in the US, the UK and Europe where house prices are down for possibbly a generation.
Suddenly a house is not an investment anymore, it is a way of securing your accommodation for the long haul. Isn't that what a home should be about?
So what will happen to Australia's 1.7 million residential home investors who lose more on their investment every year in the hope of seeing capital gains? Well they are the victims of their own folly. As tax rates have fallen, the attractiveness of these negative gearing schemes was only shored up by one off growth spurt on the early 2000's, and that was on the back of sales pitches historical housing figures that will not be repeated. So all this fluff and puff is behind us.Like all ponzi schemes, the ones holding the baby when the music stops carries the lose, as those out early get to spend their money. What a beautifu swindle! It's not legislation as a crime! So the perpetrators get out scott free.

What's ahead for Mortgages in 2012?

Whats ahead? A flat house market and steady house prices. Maybe a little more price easing. Hopefully a big fall in land prices that is the real problem in home prices.[Ever wonder why the biggest donations to political parties were from Property Developers? Hmmmm.]
Expect to see house price inflation in country areas where the mining boom is happening. Other areas will see falls in house prices I predict. Its already happening in residential land prices in the towns across Australia. If I were buying a home in a country town, I would want a 10 year mortgage with comfortable repayments. Otherwise renting would be my option. A thirty year mortgage only makes sense in the capital cities of Australia today, because are economy and our society is so dynamic, and mobile. You can't shift real estate.

Australia: Experts in Digging Holes and turning dirt into Gold

The great thing about Australia is that most of it is lousy for growing things, but the soil is rich in minerals. So we have become more into digging holes and shipping the dirt off for Gold. Not a bad earner.

What we have also become is the beacon for climate change and hopefully we can transform this into an energy creation earner. More renewal energy means less imports of oil, and less pollution. Can we export energy so produced, or at least the kit to make it happen. I hope so. My Crystal ball is telling me is that energy, clean air, clean water and food will all be at a premium in the years ahead. We should position the Nation for this inevitable future World.

The cost of money will rise in 2012

The banks are trying to warn people, but the Government is pretending not to listen. The Euro crisis, and in particular, the fact that the UK does not want to touch their baby [smart brave move], will mean that France's banks is caught holding that particular baby, so expect to hear the music stop anytime soon. Once that happens we will have a credit crunch, lower RBA cash rates, not all passed on by the banks because the cost of their borrowing will zoom up.

2012? A good time to be a Saver. A good time to be in Australia. Have a good one!

Source: Rick Adlam, Mr Mortgage [reprinted by permission]

First Home Buyers: First Home Owner Grants boosted in each State

Home builders and land developers are desperate for your home business, as shown by the recent boost to FHOG so you can count on discounts from both of these players to make buying and building a new home more attractive.

Home sales throughout Australia are down and home builders, real estate agents and land developers are all feeling the pinch.

Concerned State Governments are adding to the Federal Government's $7,000 first home owners grant, [FHOG] in an attempt to get first time home buyers back to looking to buy a home.

What the State Governments are offering right now, State by State :

Australian Capital Territory


The Home Buyer Concession Scheme is an ACT Government initiative that charges stamp duty at a concessional rate. The rate depends on the date of purchase. The Federal Government is still offering the its $7,000 First home Owners Grant, which after 11 years looks a bit tight, compared to the cost of building a new home home these days. This grant only applies to homes under $750,000 in the ACT as they figure if you are spending more you don't need assistance.
Conditions to note.
The first home buyer must lodge their HBCS within 90 days of the grant, transfer or agreement, and applicants must satisfy previous property ownership criteria, as well as an income test. For the actual details of this scheme visit www.revenue.act.gov.au/home_buyer_assistance/first_home_owner_grant

New South Wales

Eligible first home buyers in NSW can receive the First Home Owner Grant (FHOG) of $7000 to assist them in the buying or building of their first home, regardless of income or the area in which they plan to buy or build. A cap of $835,000 on the value of the home has been in place since 1 January 2011. Only one grant is payable per purchase, regardless of the number of eligible applicants involved in the transaction.
The First Home Plus Scheme, is a NSW Government initiative providing exemptions or concessions on transfer duty for eligible first home buyers. Homes up to the value of $500,000 are exempt from the tax, while homes valued between $500,000 and $600,000 receive a concession. In total, First Home benefits of up to $24,990 ($7000, plus a duty exemption of up to $17,990) are available.
Changes to note in NSW.
From 1 January 2012, the First Home Plus Scheme will be replaced by the First Home - New Home Scheme. Under this, stamp duty concessions will only be available to first home buyers purchasing a brand new home or vacant land intended to be used as the site for a first home. Buyers of established properties will no longer receive the transfer duty exemption or concession as of 1 January 2012. For more information, visit www.osr.nsw.gov.http://www.osr.nsw.gov.au

Northern Territory

The Federal Government's FHOG scheme provides a $7000 grant to first home buyers. A cap of $750,000 applies. The Northern Territory Government provides a stamp duty First Home Owner Concession (FHOC) for first home or first land buyers.
From May 2010, FHOC is an amount up to $26,730 off the stamp duty payable on the first $540,000 of the dutiable value of the property. The FHOC is not means tested, but the purchase price of the home or land must not exceed $750,000 for a home or $385,000 for a block of land.
Where these thresholds are exceeded, the FHOC does not apply, but you may be eligible for the Principal Place of Residence Rebate of up to $3500 off the duty payable
Queensland
The FHOG scheme provides a $7000 grant to first home buyers. A cap of $750,000 applies. Until the 31 January 2012, the $10,000 Queensland Government Building Boost Grant is also available to buy or build a new home. The First Home Concession are available to help reduce transfer stamp duty costs,and eligibility requirements can be viewed at visit www.osr.qld.gov.http://www.osr.qld.gov.au

South Australia

The FHOG scheme provides a $7000 grant to first home buyers. A cap of $575,000 applies. SA also offers a First Home Bonus Grant that provides an additional payment of up to $8000 for eligible first home buyers who enter into a contract to purchase or build a new home before 1 July 2012, or an owner builder who commences construction before this date. For details on this and any sunset conditions go to visit http://www.revenuesa.sa.gov.http://www.revenuesa.sa.gov.au
Tasmania
The FHOG scheme provides a $7000 grant to first home buyers. A duty concession may be available to eligible first home buyers. A concession up to $4000 is available for the purchase of established dwellings up to the dutiable value of $350,000. Or $2400 for the purchase of vacant land, up to the dutiable value of $175,000. For more information, visit http://www.sro.tas.gov.http://www.sro.tas.gov.au

Victoria

Victoria seems to be the best State to buy a home in and this is reflected in the number of homes that are being built there. The FHOG scheme provides a $7000 grant to first home buyers. A cap of $750,000 applies.
Until 30 June 2012 (contract date), you may also be eligible to receive the First Home Bonus, an additional payment of $13,000 for new homes only – a cap of $600,000 applies for these added incentives.
www.sro.vic.gov.http://www.sro.vic.gov.au

Western Australia

The FHOG scheme provides a $7000 grant to first home buyers. A cap of $750,000 applies. The Home Buyers Assistance Account provides first home buyers with a grant of up to $2000 to assist with the incidental expenses purchasing an established or partially built home through a licensed real estate agent for the purchase price of $400,000 or less.
This is a divergence from other states in that its promotes first home buyers buying an established home, not building a new home. To get more information, visit www.commerce.wa.gov.au and download the special PDF, http://www.commerce.wa.gov.auwww.osr.qld.gov.http://www.commerce.wa.gov.au

Which Way for Mortgage Rates as Homeowners feel Mortgage Stress

Mortgage stress and loan repayment arrears are becoming a growing reality for Australian Homeowners in New South Wales, Victoria & Queensland.

A growing number of mortgaged homeowners are feeling the pinch and mortgage payment arrears are rising to 2 percent in some areas of Australia. Whilst this is still tiny compared to what has happened in the US, it should be a red flag to the RBA when considering any further rate rises. In fact some are now believing that the next interest rate move could be lower.

What percentage of income creates mortgage stress?

All I know is that the old standard when we had many single income families in Australia, in the 1960's to the1970's that it was hard to get a mortgage without 20% deposit, and that 30% of your gross income on your mortgage was the limit you could go for.
This had the effect of suppressing real estate values.

And don't forget that income tax was at higher rates than it is today, so meant the average family was always squeezed. The other thing that happened in that era was constant wage increases and that soon made mortgages easier to cope with. That is just not part of the landscape these days. Successive Governments have opted for tax cuts as a way of moderating inflation and improving cash-flows on a household level.
So wage increases are few and far between in this period, and much more gradual than in those days. The result is that people who swallowed more they can chew today, have to put up with many years of indigestion in what we call mortgage stress.Its not something that we get into and inflation takes us away from anymore. Its around a lot longer.

The other big change is real estate value increases. In the sixties and seventies we saw a lot of home value appreciation, but for the passed four years we have seen little by way of property price rises, and some areas we have seen house prices fall recently, and it can make the pain of mortgage stress a lot harder to cope with. When property values slide backwards, it can give you that sinking feeling, especially if you find yourself underwater, meaning that the debt is larger than the equity of the property.

The Reserve Bank of Australia Moves interest rates in Mysterious ways.

My view is that the RBA rate rise in November was one rate rise too many, and many on the RBA are beginning to see that this was the case. That's we are getting interest rate rise talk, without the action.

Will we see a rate rise or a rate drop next time?

Earlier in the year my bank manager asked me if I wanted to re-fix my mortgage as it came out of a very attractive fixed rate. They thought they were doing me a favour. I told them no, because I could not see how a rate rise was possible. Well, my variable rate is still under where the fixed rate would have been set, and variable rates could go lower. Now some brave traders are betting on the next move in interest rates to be lower down in Australia. More about that below.

The reasons Lower Interest rates may happen

There were plenty of reasons for this, and they all have resurfaced now because they never went away. They are weak house prices and housing demand, slow wage growth, low retail spending, a shift to saving over spending that is seeing savings rise. Also the Euro debt crisis is yet to be behind us, and the US could double dip into another recession.

Currencies traders are starting to bet that Interest rates will fall in Australia.

Most economists say that one or two rate rise are possible later in the year. But some currency traders are now betting that the next rate movement by the RBA will be down, not up.
So any homeowner trying to sell a home right now, any home buyer looking at buying a home soon, and any real estate agent or mortgage broker wanting more business would be praying that a rate drop will come to pass.

What will happen to homeowners if mortgage rates don't fall?

If interest rates don't go lower, but rise instead, borrowers with only average-size mortgages in Sydney and Melbourne will be on the verge of ''mortgage stress''. And homeowners with mortgages that are bigger than average could be in for a lean ride. The experts say that a household is under mortgage stress once home loan repayments take up more than 30 per cent of gross income, according to some. But they are talking about two income families. It would make more sense for people know what their maximum mortgage repayments should be as a percentage of their net incomes.

Part of the problem here, is how much other debt are these people carrying, and how they are affected with other price increases. That includes petrol, electricity, gas and food. All are rising way faster than inflation and that has to be making it harder for all home buyers and mortgage holders to cope with mortgage payments.

Source: Mr Mortgage

Mortgage Lenders: New Mortgage Lending Rules to hurt home loan lenders



Mortgage lenders and community bankers across the US are lobbying lawmakers over proposed new federal home loan credit rules as the end on the discussion period looms.

The new mortgage rules seek to reduce risk-taking on mortgage lending, but mortgage lenders say the guidelines could hurt small banks and would be bad for credit markets. The Securitized Lenders rules are part of the recently passed Dodd-Frank "Wall Street overhaul bill".

Mortgage Securitization and home loan lending Rules under contention

Now US finance regulators need to establish guidelines for originators of securitized loans, to prevent the problems that lead to the US financial meltdown.
One of the key aims of the legislation is to reduce risk-taking.
The legislation proposes to do that by enforcing mortgage lenders/originators to hold a 5 percent stake in any debt instrument pooled in the secondary market.

Will small banks leave mortgage lending?

Many people believe that making the lenders partly responsible, and tied to the home loan outcomes will see many banks leave mortgage lending, fearing the consequences of being saddled with "hurt money".

The fear is that many home buyers will be denied access to mortgage credit should mortgage lenders leave the housing market.

Is the 20% down & equity rule too harsh or a healthy safety lending margin?

The law gives an exemption for mortgages deemed to be safe enough and gave regulators the task to define such suitable loans.
Regulators have proposed an exemption for the so-called qualified home loans when borrowers make 20 percent or more down payments or equity in the home for refinance purposes.
Some believe that this should be reduced to 10 percent as 20% would kill home loan lending and home values would sink lower still.

Source: Mr Mortgage

Housing Market-Australia needs to reduce the cost of land for new homes to improve housing affordability

Is increasing land supply the real key to bring down house prices?

Australia's housing market is a key driver of the domestic Australian economy. This article attempts to shed light on the true cause of our high home prices and that over priced land is the the real cause of our our over priced homes.

The case for massive land development for new home construction

New homes not only provide work for hundreds of thousands of construction workers and tradies, they are the main customers of hardware, timber, roofing, and concrete industries.
Once a new home is built there is a flow on demand for cabinetry, curtains and blinds, kitchen equipment, stoves and appliances, furniture, tiles and carpets, landscaping and out door living, with patios, sheds, swimming pools and spas. Yes, its big business and it drives much of the big ticket retail spending in Australia.

This is the type of spending that has stopped in recent months, and the reasons are obvious, New home sales are down, especially in flood affected Queensland.

Is Housing Australia's biggest asset?

The housing market has a $4.2 trillion capitalised value

Housing construction is at a 12 month low, and that theretail sector is having the worst period in 20 twenty years, we can quickly see that the two powerhouses of Australia's domestic economy are connected, and that when new home sales fall, so does retailing.

In fact I would say that there is also a smaller connection with established home sales and retail sales of house hold items, simply because moving home creates new needs for home buyers that these retail sales satisfy.

The problem for Homeowners credit over supply is being reigned in.

In case you haven't noticed f you are a homeowner, expect to see your home values shrink. SInce the 1970's House prices have risen above inflation and income growth. The main driver was the baby boomers buying their first home, their second home and until recently, investment properties.

Many baby are now slowing down, and are cashing in to downsize, become grey nomads or retire. In the future these homeowners will move to retirement villages and nursing homes.

Average home prices in Australian capital cities fell 2.1 per cent in the March quarter, according to the Australian Bureau of Statistics.
This will continue as baby boomers leave the housing market, sell off their investment properties and hit the road as grey nomads. Their spending patterns will change dramatically once this occurs.

The impact of the GST on House Prices

The GST and first home owners grant was a major driver inflating house prices
The worst thing that the Howard Government did to house prices was the GST. Besides lifting house construction prices instantly, it also drove many older small builders out of building and into early retirement.

That was followed by the First Home Owners Grant, which added fuel to the home prices inflation fire.

Many people point to the First Home Owners Grant as the problem for raising house prices. They forget that this was brought in because of the GST to compensate the first home buyer for increases in the cost of building a home, brought on by the GST.
One or the other would have increased prices of all homes, The two together created a boom for real estate sales that rippled through the past decade. That caused the interest rate hikes we have to wear now.
When you consider that this was at the same time as the last wave of the baby boomer effect in 2002, a perfect storm for inflation was created. Now the new first home buyers have to pay for all of that, and many are not interested in homeownership. They have better things to do with half their take home pays.
After all, renting is cheaper, and you can invest the difference in a liquid investment, and with the recent figures of falling house prices and the Reserve Bank of Australia's  constant threats to raise interest rates, its easy to understand why new home buyers are being over cautious.

Land inflation the hidden cost of new homes, not construction costs

As I have been saying for some time, GST have increased new home costs, as have the increased requirements in building codes around Australia. But these have added little to the cost of a new home. The main cost increases have been due to land cost increases and Government charges on land development.The drivers for those increases ate the First Home Owners Grants at the same time of land development shortages and deliberate scarcity sales tactics by land developers.

In the year 2000 a block of land was around $70,000 [or less]. In 2010 the cheapest block on the Sunshine Coast was $294.000. Yet land was not supposed to have GST on it!If you leave things to the "free market" you will get ripped off.

Some say that Australian houses are ''overvalued'' and should be halved. I don't believe that homes in Australia are over value is nearly as high, or that house prices will fall much more than they have already. But they are too high right now.
But our house prices being the world's highest, does not make sense, given our abundance of land. Our home values are above that of Hong Kong. But we have abundant land and Hong Kong is a tiny island and has land scarcity. Can you see something wrong with this?

Housing demand is elastic. It depends on the home prices.

Can you remember when people were saying we were 200,000 home short of what we need?Well what happened to all those house buyers? They have evaporated
Some would argue that house affordability is driven by interest rates, others by supply and demand, others by incomes.
I believe that these are silly arguments. As we in Australia have abundant land on which to build, it does not make sense that land prices are too high and in short supply.

Government needs to step in and ensure Land is developed to exceed housing demand if it wants homes to be affordable.

We cannot expect private enterprise to fix this, because land developers benefit by high prices, and high prices are driven by scarcity, which they use to keep prices too high.
Also we can't expect builders to build homes before they have house buyers, with the purpose of lowering house prices. That would not make sense.
What is required is a Government plan to oversupply the residential housing land market, for sale at half the current prices and restrict the size of homes, rather than have covenants for ever larger homes.
This will boost home building, and mean that first home buyers will choose a new home over an established one, and this will reduce established home prices. So interest rates will have little effect and affordability will not be a limiter.
We are spending too much on homes and banks are getting the biggest benefit, because the proportion of our wages are been received by banks.

The solution to Housing Affordability and reviving the building industry is halving land prices.

The solution is to bring home prices down over the next 5 years, and the way to do that is to massively oversupply the amount of land available to build on at half the price currently offered. This policy would ensure that mortgage stress is a thing of the past and that housing affordability is never an issue for new home buyers.
Source: Mr Mortgage

Mortgages: Finance giant GE Money tries to off load $5bn mortgage portfolio

GE Money pimps its Australian mortgage loan book of $5 billion, as the US General Electric parent seeks to get back to its knitting [manufacturing].

This suggests to me that GE know what's coming down the pike for the future of the mortgage business worldwide, and their crystal gazers are seeing trouble ahead.

But Australia's big banks will be taking that into their stride

Commonwealth Bank [CBA] and National Australia Bank [NAB] are among those believed to have issued an indicative bid for the lending book. Others looking at the bid include Australian non-bank lenders.

GE Money ceased taking loan applications for mortgages in Australia two years ago, after mortgage credit became hard to set and the mortgage meltdown in the US market spooked them.

In 2008, CBA bought a 30 percent share of Aussie Home Loans who then grabbed the Wizard Home Loans portfolio for a fraction of the $400 million paid for the business by the US company four years earlier.

As part of that deal, CBA emerged with a $2 billion mortgage portfolio with loans originated under the Wizard brand.

At its peak, GE Money was the biggest non-bank lender in Australia, & looked the contender to take on Australia's big four banks.

But when the Global Financial Crisis hit, GE Money was hit with big losses around the world, and the need to refinance its lending arm threatened GE's existence.

GE has since recovered, and following the financial crisis has changed strategy to focus more on making industrial products and less on financing. Hence the mortgage sale.

The sales covers only a fraction of GE Money in Australia

It is believed the sale is limited to GE Money's mortgage book, GE Capital's total Australian lending book is  $28 billion, with with most of that in its more profitable motor vehicle and personal lending and business financing operations.

Subprime Home Loans: Will Australia have a US style meltdown

The US subprime meltdown occurred in 2006 to 2008, now people are saying that tAustralia is in a position for it to happen here

Many are saying that Australia is headed for a sub prime mortgage crisis similar to that in the US. I don't buy it. I don't believe that there a case for this to happen here. On many levels Australia is much better positioned.

Here's my view on Australia's Sub Prime Lending position

1. Australia has a better industrial relations and minimum wage support structure. So having people work for peanuts does not happen here like it did in the US. Many of those workers applied for and got sub prime mortgages.

Australia has a booming labour market that is stable

The US does not have anything like our labour market 3 years on. Things have not improved on the unemployment and wage front for two years in the US.
Our home values have trended down for three years, with occasional spikes in some centres reflecting stimulus related demand.

Australian property prices have moderated

Our property prices have trended down to a soft landing and only those that bought at the top of the property market are looking at taking a loss, if they sell.
I agree that homes in Australia may still have some way to fall, but sub-prime lenders have to front with usually 20% deposit or more, so they are going nowhere.
The US experience was different
In the US, property values soared then crashed on the basis of bad loans, not sub prime lending. many people had 120% loans.This is an entirely different situation than an 70% to 80% lend.

Mortgages work differently in Australia

In Australia, we are tied to the loan, but in the US, homeowners can walk away anytime and send the bank jingle mail. They don't suffer the same consequences as they would in Australia. So Australians are less likely to walk away from their loan or their property.

The US Equity Home Loan

The other problem that the US had was that people were using the equity in their homes as an ATM to buy cars and other big ticket items, so they were at the hilt of loan to values, before their home values collapsed.
A few people do this here also but usually to a value of 80% lend, plenty of buffer for a downturn in home values.

Mortgage loans disappeared in the US

The US lost 40% value over night, because mortgage loans went from abundant to scarce overnight.
Many homes in the US lost 75% percent of their values. Most lost 40%. Many because their financial system was broken.
 Only places like San Francisco and New York did not see these numbers in loss of house values.

Credit risks were ignored in the US

The sub prime lenders in the US also lent to people that they knew could never repay the loans.
That has not happened in Australia, and even with low doc home loans, the borrower has a cash flow.
People that are credit impaired can get home loans, but higher deposits and higher rates are the norm.
The Pool of Sub prime lenders in Australia id much smaller than it was in the US
Our sub prime market is also a lot smaller in Australia than it was in the US.
I agree that if we get two more rate rises this year, then we may see less buyers in the market and a lowering of property values.

Our foreclosure rate says we don't have a sub prime lending crisis in Australia

Our foreclosure rate in Australia is tiny compared with the US
In the end we don't have a sub-prime crisis in Australia, because lenders have tightened their lending criteria.

We do have an Housing Affordability Crisis.

We do however have an affordability crisis, and this means that less and less people can afford to buy a home. It also means that less people can get a loan and get into financial difficulties by over paying on property like happened in the US.

Governments in Australia need to bring the cost of land lots down.

So yes, the government have to do something about that, and the root cause in land prices, Lower the cost of land by over $120,000 per block and affordability will return and house prices will soften further.
This means that the RBA can put interest rates up further and it won't hurt like it does now, because the borrowing will be lower.
Author: Rick Adlam Mr Mortgagehttp://www.mrmortgage.com.au

Home Loans: Big Banks discount war rolls on

NAB and CBA have a go at switching lenders competition

Home owners and home buyers seem unmoved by the NAB and CBA bank offers to pay lenders to switch from their lending competitors to their home loans.

The Big Bank Rate War rolls on

Australia's banks have had a tongue lashing from all sides of politics over the past few months, and that gave NAB an idea.
Playing "good bank, bad bank", and saying that they had parted company with the likes of Westpac and the Commonwealth Bank of Australia [CBA].
The Big Four has lost creditability with the Australian public, and some market share as people thought they could do better elsewhere.
But Australia's big four banks are so far ahead of the thundering herd of home loan lenders, particularly Westpac and the CBA, that they can take the heat all the way to the bank, so to speak.
The Nab and CBA profits are sky high records and the Westpac dividends are the best of Banks anywhere in the world at over 8%.
The Big Four Banks are now seen as not only too big to fail, but too powerful to be pushed around by the Government or opposition.

Westpac and the CBA have a mortgage on Australia's mortgage business.

So we had the “Soapie” like drama unfold as Nab and the CBA thrashed it out for creditability and belief from an increasing disbelieving mortgage borrowers.

We will pay you to switch and lower interest rates are unconvincing because people know that banks manipulate interest rates when it suits them. They also know banks treat them like milking cows for the investors, so are starting to look for other options.

Bank Show down or showpiece?

The end result looks like petering out into a stalemate between the NAB and the CBA.

Westpac can afford not to play but try to hold onto its client base which fell under the spell of the Banana Smoothie pitch, and those poor sods are paying over the top mortgage rates because they won’t shift their home loans.

The CBA offer of up to $1200 in cash to NAB customers looking to switch loans, was a move seen by most as a threat to NAB to stop rocking the boat. The communication was seen as not genuine by borrowers, just a bit of bullying by CBA.

In a recent survey a quarter of active mortgage shoppers did not know there was a price war. I am in the business and I forgotten about it myself. Hardly gripping stuff.

We haven’t seen much from the ANZ lately, so they may be playing a stealth game.

Housing Market: Mortgage Brokers are asking what happened to the housing shortage?

Falling home prices and home sales tell me that the housing shortage has evaporated. Mortgage loan demand has tanked with it. So what happened?

Four years ago the HIA claimed we had a housing shortage of 80,000 units. Rents were growing and people were on waiting lists. Home Builders had and field day and so did mortgage brokers financing both homes and investment properties. Things were good.
By late last year the housing shortage had ballooned to "120,000", then 180,000 this year and was tipped to reach 200,000 homes needed to satisfy our need more homes and units by years end.

Who stopped the mortgage merry-go-round?

Most of these claims have come from the Housing Industry Association. They are echoed by real estate agents everywhere as the reason you should buy now, the best reason to sell now.
When you go and see real estate agents they tell a different story. My local area in Ormeau, has had a slow and steady rise in real estate prices for the past ten years, until late last year. Then the the last mortgage interest rate rise cut in and people stopped buying and the music stopped for the real estate merry-go-round.
I asked one of the local real estate agents what was happening to real estate prices and we had had a 10% drop in the Ormeau [North Gold Coast] area. The first drop in home values I had heard on since moving here and building anew home in 2002. Homes were selling, but not at Ormeau's solid and brisk pace.
Nice homes on large level and elevated blocks, with wide tree lined streets. this is a lovely area.

Where are the home shortages, and the mortgage business potential that goes with them?

The issue is not so much the Gold Coast but the general theme of housing shortages which dominate the property industry talk and the HIA spin nationwide. It's a grave concern to mortgage brokers

Vacant Land Sales down to the lowest levels since 1994

Mortgage brokers that haven't been seeing too much vacant land mortgage loan deals come their way lately may be interested to know that Land Sales are at the lowest level they have been since 1994.

The January floods would not have helped sales any, but the Queensland floods never affected the Gold Coast at all! So we have to conclude something deeper is happening.
According to a recent report on the Gold Coast we have 13 months of land supply at the current sales rates. So land shortages are out the window when we look for a reason for low new home sales and construction loans that go with these building contracts.
The same is true for "House and Land" sales. They are just not happening.
Lan developers on the Gold Coast say that land production over the next 12 months will reach 2455 lots. This is twice the current level of annual demand. Something will have to give.
Remember that next time you hear the Housing Industry Association or the Master Builders Association complaining about the lack of land sales or new house sales.

Boomtime with lower Home Value = oversupply

We are in a boom time, make no mistake. So the only reason that we would see home value declines is a homes for sale glut. Home buyers can pick and choose all month long and wait for prices to fall further.
The number of dwellings for sale is at its highest levels since early 2009.

Why have land sales plummeted?

There is a current lack of demand for land. I believe I have the answer to this one. Block sizes. Land developers have been cutting the size of land lots now for ten years and the prices climbs ever higher.
People are just nor seeing value in buying land that is smaller than to cam buy already built on.
As the established home prices fall, why would anyone buy a smaller block and build a smaller home and wait 12 months to move in when they could buy a finished home now that is bigger and better for less money? Your are right they wouldn't.

The biggest boomtown in Australia is Perth, but land prices are falling there too.

Land sales dropped 27 per cent in Perth in the December quarter, while average prices fell 3 per cent.
Such things do not occur amid a "chronic housing shortage crisis".
There's certainly no shortage in Adelaide, where vast areas are being opened up for new development in the north of the city.
The over-supply of building land is a fact in Western Australia Australia's boom State and in Melbourne. Victoria, Australia's biggest home market.

Mortgage Brokers need to think Refi

Mortgage brokers will have to become proactive in writing mortgage loans and should look to the mortgage refinance and home equity loans to grow their business. Home buyers and new home builders will be thin on the ground for sometime to come.

Mortgage Shopping: Should you DIY or use a Mortgage Broker?

When shopping the home loan market you can take one of two approaches:

1. Research and apply directly to your chosen mortgage lender, or 
2. Engage a Mortgage Broker to do the legwork and the paperwork for you.

A lot of people ask me which is better, sourcing a home loan yourself or using a broker,
Some say that if you are happy with your bank as a mortgage lender there is no reason why a direct loan application with your bank won't get you a loan.

But sometimes having a mortgage broker can actually make the difference between a loan approval for that home loan, or a decline letter.

Reasons for using a Mortgage Broker

1. Specialised mortgages and lender knowledge. They know who has the best offers, and which only look good on paper.
2. A broker can save you time and ensure that you don't miss great offers.
3. Get your application to lenders who are more likely to approve your loan.
4. Advise when an advertised rate is not what it seems
5. Allow you to consider home loans from mortgage lenders you may never have heard of before.
6. Prevent you from trashing your credit rating. Aimlessly applying for loans all over can get you declined. Make sure you find the best loan and lender first, then apply.
7. Mortgage brokers know the home loan lenders that factor in incomes that others don't.
8. Did I mention the services of a mortgage broker are mostly free to you? Some services are not free, but setting a home loan usually is as the broker is paid a mortgage broker fee. 

Mortgage Broker verses applying direct to the lender summary
Using a mortgage broker is a fee to you service that can save you time and money tracking down the best loan for your needs.
Mortgage brokers know the market better than you do, and it makes sense to use this experience, if it were not free!
But some people just have a need to do everything themselves. I you are one of them, don't sweat it, just do it yourself.

Property sales : Has the dead cat bounced in Australia's property mearket?

Property sales : Has the dead cat bounced in Australia's property market?

Property sales across the country have slumped to their lowest level in 10 years. despite rising sales in Melbourne, and some upturn in Sydney's housing market
Figures from RP Data show sales of houses and units dipped 20 per cent in 2010 on the back of a number of interest rate rises, and falling demand for other reasons too I suspect.
Darwin Brisbane and Hobart all recorded lower home sales activity, with Sydney leading the way.
The "dead cat bounce" analogy
Home sales fell last year to below those recorded at the height of the global financial crisis in 2008. That was when the rest of the World had a major correction in house prices and Australia missed that bath. Hence the dead cat bounce comparison.
Whilst we have seen several raises in mortgage interest rates, they are hardly a concern at average mortgage rates we have and full employment, so my guess is that house prices have got ahead of themselves and until they soften further we are unlikely to see an upswing in home buyers any time soon.
New Responsible lending laws
One thing that people are not talking about is that from January 1st, 2011, banks had to be more diligent in the lending due to new responsible lending laws taking affect.
The fact is that new land on the Sunshine coast is so over priced that lenders may be reluctant to fund the silly prices being asked for blocks of land, on the basis that the market may well soften further and they would be caught holding the baby.
This is besides the fact that the borrowers may have a hard time meeting the repayments. It may becoming easier for bank managers to say no to loans, as the big banks are loaded with mortgage borrowers who have equity in their homes and the ability to repay the loan. Why pick up new business that does not meet that criteria?
You may have noticed that the ads from the big home builders and the developers have suddenly stopped. They are not into throwing good money after bad, and the developers may have to start thinking about discounting their land if they want to offload the land that they have going unsold.
First Home Buyers an extinct species
Over priced land has killed off the first home buyers in the new home sector. Decades ago cheap land was the spur that meant that first home buyers usually bought house and land in the sticks. Well that does not happen anymore.
And the problem is that second home buyers wanting to move up want a decent lot size. That won't happen under $300,000 on the Sunshine Coast. So since when was residential land worth over $2 million dollars an acre? Since Stockland and Delfin monopolised the residential land development market it seems to me.
All was fine whilst the Labor Government propped up sales with trebling the first home owners grant to stimulate first home buyers into building a new home. Well that has stopped and as usual, the price of everything rose to the level that people could afford with the grants. Take them away and the party is over. Isn't this what has in fact happened?

If the Government wants to get people into new homes, and get home prices down, it needs to take control of land sales and development.
Without new players in the home loan markets, expect to see mortgage business drop and the return of refinancing and debt consolidation in the mortgage broker sector.

Bank Mortgage Wars: Australia's Big Four Banks slug it out in the home loan space

Bank Mortgage Wars: Big four slug it out
NAB fired the first shot with the "break up" letter.
The National Australia Bank [NAB] has the least to lose and the most to gain in the home loan sector, so this made a lot of sense for them.
NAB has the smallest home loan portfolio, and the CBA and Westpac home loan customers looked ripe for the plunder. Have a go yer mug!


Westpac and CBA want to retaliate. 
NAB's business portfolio is their crown jewels. Hit em where it hurts most they must have thought.
This is competition. Wayne Swan and the ACCC would be pleased.
Westpac in the meantime are retelling the "banana smoothy story" to anyone who will listen [mostly the morons that are paying over the top mortgage interest rates, because they are a sucker for Nanna Gail's tales.]

What about the money? The fly in the ointment
The investment community are not happy. Better deals for customers mean lower profits, and that means falling share prices and lower dividends. But no customers means lower profits ,and being left standing in the NAB's drag race challenge means that the NAB would start to gain some badly needed traction in the home loan business at their expense. So doing nothing is not an option.


That brings up a question, So just who are the banks working for then.
The Government, the customers, or the investors [who actually own the business] That includes the fund managers who buy their stocks as part of their investment products, and low profits for banks mean a lower performing investment.
Well all three if the truth be told. That's if we don't include the managers and board.
Who has the biggest clout in the major banks?
Well today it looks like the shareholders and fund managers. The NAB challenge will put pressure on profit margins and that means earnings slides. it might even give them some good press in the eyes of borrowers. OK. So the NAB wins then? Not if Westpac and the Commonwealth Bank [CBA] have anything to do with it.
And the money side of town are worried that real competition between the big four banks is going to fierce, and lower earnings, profits and dividends would be the bitter harvest. Market share is the name of the game for the Big Banks. CBA and Westpac have it, and NAB wants to take it off them.

The drag race challenge. NAB v Westpac and CBA
National Australia Bank dropped a bombshell last month with the offer to pay the mortgage exit fees incurred by Westpac and CBA customers. Switching was in the news, and that is always a good place to begin a marketing campaign. [In the classic drag race manoeuvre, the under dog picks a fight with the top dog.]

Retaliation from Westpac was swift.
Westpac [and the CBA] have discount loans to new customers on offer. That's what NAB are already doing and it got them nowhere. And what about Westpac and CBA's existing home loan customers, locked into high interest rates? Too bad, if they are too dumb to give a crap and move thinks Westpac.

The CBA retaliation move: Relax the Lending Criteria. Easy money? 
I thought that is what caused the GFC?
CBA revealed it had relaxed some of its lending criteria, in an effort to suck all the new mortgage business to its doors. [Bad move I say]. Swap good mortgage customers at premium rates for "iffy" clients at discounted rates? [CBA is getting mad, or is that going mad?]
The other problem is that there are few new customers, New home sales are down, home prices are lower and buyers are thin on the ground, and maybe waiting for further price erosion?


Governments and Customers rejoice in real competition.
These small bit exchanges have been welcomed by consumers and the government as a sign of real competition for a change.
But will the campaign run out of steam, or this all a show for the audience ; look we have real competition and we don't need all this new regulation stuff that Wayne Swan is planning.


Investors are not impressed
With the big four banks, our "money for jam" banks are one of the most profitable sectors of the Australian market right now. The big four banks alone are aiming for a combined earnings over $20 billion in 2011.


Money ain't cheap these days.
Funding costs are tipped to rise and lending over the next three years is forecast to slow, so profits falls were likely anyway.


Will the Fifth Pillar "do doughnuts" around the big four banks?
If the so called fifth pillar, the regional banks and building societies and credit unions get better funding arrangements, then its going to be really tight for the big banks to maintain their profitability, unless they do as the ANZ and start to look for opportunities in new markets overseas.

Mr Mortgage forecasts lower home loan demand over the next three years, better deals from non bank mortgage lenders and credit unions and raised status of mortgage managers in the coming months as the real competition in the mortgage space. The NAB verses CBA and Westpac drag race is just the show opener for things to come. If you are looking to switch loans away from CBA or Westpac, wait till the new rules are in place in July.
For new mortgage loans look at credit unions, and building societies and non bank home loans for lo doc lending.