Australian homeowners are trapped in ‘mortgage prison’

THOUSANDS of Australian homeowners are trapped in “mortgage prison” because of a government rule change. And there is no obvious easy way out unfortunately.

THOUSANDS of Australians are stuck in a “mortgage prison” with newly imposed lending criteria leaving them unable to refinance their loans to get a better rate.

Changes in bank rules around living expenses calculations have effectively wiped huge amounts off the maximum a bank will allow them to lend you.

Many people are now finding they originally borrowed more than a bank would lend them under current conditions, meaning they haven’t got the option of shopping around to get a better interest rate — no bank will approve to them the amount they need.

Lending criteria has been tightened in the past year. The ongoing Financial Services Royal Commission is likely to tighten the criteria even further — meaning people will be able to borrow even less than they once did.

With homeowners unable to shop around, they can be stuck paying a high interest rate, which will leave them potentially paying tens of thousands, even hundreds of thousands more over the life of their loan.

Recently the Bank of Queensland and Auswide Bank announced they will raise variable mortgage rates as their borrowing costs grow. This follows a warning last month from Credit Suisse that out-of-cycle rate rises were on the table.

Precise numbers of Australia’s mortgage prisoners are hard to determine, but Mozo investment and lending expert Steve Jovcevski told news.com.au that he expected most of them are those who have borrowed and bought property in the last five years.

He said the changes in how mortgage eligibility are calculated have made a huge difference for many recent borrowers, particularly as banks start to raise interest rates.

Before lending criteria was changed, a flat rate for living expenses was usually applied, resulting in many hopeful homebuyers borrowing much more than they now could.

Mr Jovcevski gave an example of a couple earning $120,000 between them, who bought a home in 2013, borrowing a total of $800,000 at 5% per annum, and who would be paying $4295 a month on their loan, leaving $3680 for monthly expenses.

Even with a pay raise between them bringing their income up to $129,000 the couple now faces a change in rules around living expenses that raises the bar for any borrower.

Homeowners who have bought in the past few years are most vulnerable, especially if they borrowed 90 per cent of the value of their loan.

Previously banks estimated these expenses, with a buffer of 1.5 per cent to safeguard against rate rises. Now they are looking closer at people’s monthly expenditure, and have increased the buffer to 2 per cent.

Under this new criteria, the couple would only be able to borrow $680,000, even though their income hasn’t changed at all.

And because their mortgage is still more than $680,000, they won’t be able to find another bank to make up the difference — meaning they’re stuck with their original loan paying a high interest rate.

The difference between a 5 per cent home loan and a 3.8 per cent home loan amounts to $149,272 over the life of the loan.

“When a customer is essentially tied to a provider, they are at the mercy of whatever rate rise or conditions the bank chooses to impose. Given the current situation, banks have the power to hold some of their customers prisoners,” Mr Jovcevski said.

“The sad reality is borrowers who need competitive mortgage rates to stay financially afloat are most likely to be mortgage prisoners.”

First Home Buyers Australia director Taj Singh said he was very much aware of the crackdown on borrowing limits and living expenses for borrowers.

The mortgage broker said this was putting many borrowers in a position where they can no longer refinance to get a better interest rate.

He said given many loans were refinanced every four to six years, this issue would continue to be felt for recent first home buyers.

But Grattan Institute fellow Brendan Coates told news.com.au that the impact of any tighter lending conditions would be largely confined to a small section of borrowers as rising house prices had given borrowing room to homeowners who had been in the market for several years.

He predicted the impact would largely be felt in those who’d borrowed more than 90 per cent of the value of their house, a number which had fallen in recent years from 14 per cent in 2014 to 7 per cent in 2018.

But he did say that if house prices in Sydney and Melbourne continue their fall then the pain could spread to more borrowers.

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Henry Sapiecha

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Are you exercising away from a home loan?

To obtain a home loan, many people would know they might have to make some sacrifices – but perhaps they don’t expect their bank to suggest they cut their $15-a-week gym membership.

That’s what happened to Brooke Tassits when she took the plunge into property ownership last year, as her lender demanded to know, in great detail, about her day-to-day living expenses to get the deal through the goal posts.

Brooke Tassits was put through the wringer by her bank.

Photo: Jason South

The 23-year-old marketing professional from Melbourne says her bank wanted to know how often she ate out, went to the movies and topped up her car with fuel.

It questioned her ability to afford her gym membership with a mortgage – so was she going to the gym?

“There was a lot of back and forth, there was a lot of them scrutinising my bank statements and  questioning single items on there and asking what they were,” she says, adding that she did quit the gym.

“I remember I paid one of my grandma’s bills for her one day, and they even questioned that and whether it was a regular occurence.”

At one stage she was tempted just to walk away, because “I felt like I had to prove my entire life to these lenders”, but she was convinced to press ahead by her mother and  ultimately got the loan and bought a unit.

That scrutiny might be surprising to those who have secured loans prior to the credit clamps of recent years but being put under a bank’s microscope is likely to become more common, as the country’s under-siege banks scramble to improve their standards, which they admit became too lax.

After suffering a public pounding for all types of poor behaviour at the royal commission led by former High Court judge Kenneth Hayne, banks say they are going to extra lengths to dot every “i” and cross every “t” in meeting their legal obligations, especially those relating to responsible lending. The squeeze will also likely come on financial planning and business lending to improve standards and reduce conflicts of interest.

Many of us would expect nothing less than this kind of rigour from banks, of course.

But the increasing caution among banks – and the potential for the royal commission to cause “unintended consequences” – is significant nevertheless.

ANZ Bank chief  Shayne Elliott this week said the more risk-averse mood would likely make it more difficult for some consumers to get loans, and Reserve Bank governor Philip Lowe said the RBA was watching the situation “carefully”.

So, what might the ferocious (and justified) scrutiny of banks at the royal commission mean for consumers, if banks try to avoid further damaging revelations by retreating into their shells?

And how could the economy be affected if banks suddenly decide to tighten up their purse-strings?

The Hayne royal commission has only held a month of public hearings, but it is clearly having a powerful impact on the country’s biggest financial institutions. It is only natural there may therefore be flow-on effects for customers: whether they are people taking out loans, businesses  or consumers seeking financial advice.

ANZ’s Elliott this week told investors banks had enjoyed a 20-year golden era, stabilized by strong economic growth and a buoyant housing marketplace, but they now faced a “watershed moment” that would have consequences, including in the $1.6 trillion home loan market.

“People are still going to want to buy and own a home, so it’s not like any of this changes fundamental demand, but it will change the process used and it probably will make it harder for people to be successful in their loan applications,” he said.

Some marginal customers would miss out on loans, Elliott said, while others would need to wait longer and submit more paper work.

While this is not yet apparent in official statistics, there are early indicators of banks becoming more cautious in who they lend money to.

The percentage of people trying to refinance who have been knocked back has doubled to 31 per cent.

Martin North, who runs consultancy Digital Finance Analytics, says monthly surveys he conducts of 1000 people are showing early signs that it’s harder for some clients to get credit. The proportion of people trying to refinance who have been knocked back has doubled to 31 per cent in the past 12 months

“We are seeing evidence that there’s a far higher proportion of people, particularly with higher loan-to-valuation ratios and loan-to-income ratios, who are finding it a lot harder to refinance,” North says.

Mortgage brokers, who arrange more than half of all new home loans, also report banks are taking a much harder look at customers’ living expenses before agreeing to approve a loan.

Australian Banking Association CEO Anna Bligh says tighter government regulations could force effected customers away from the banking sector into the “far riskier world of payday lenders” if it makes credit more expensive, at the AFR B

Otto Dargan, managing director of mortgage broker Home Loan Experts, said in recent months banks had become “extremely conservative” when assessing a customer’s living expenses, as a result of the royal commission.

Home loan affordability indicator – by state

The Home Loan Affordability Indicator is the ratio of median family income to average loan repayments. Higher numbers mean more affordable housing loans.

The Home Loan Affordability Indicator is the ratio of median family income to average loan repayments. Higher numbers mean more affordable housing loans.

Source: Adelaide Bank/Real Estate Institute of Australia Housing Affordability Report September 2017 Quarter

“They are really scrutinising every application at the moment,” he says.  “I can’t remember a deal when we haven’t had a discussion about expenses with a lender.”

Typically, the customers who miss out when banks tighten credit approvals are those with smaller deposits or lower incomes, many of whom are just first home buyers.

But Dargan says the crackdown on expenses is mostly affecting customers with high incomes who also spend large amounts on “discretionary” or non-essential purchases, such as eating out or overseas holidays.

Commission screws cap down further

To be sure, banks were already tightening the screws on borrowers well before the royal commission, in response to regulator fears of a debt-fuelled housing bubble. Since late 2014 there’s been a cap on lending to investors, last year a ceiling was introduced on interest-only loans, and the banking regulator has repeatedly prompted banks to improve loan standards.

But the most recent surge of changes appear to have been triggered by the royal commission, after March hearings raised concern banks were not complying with responsible lending laws, which require them to make “reasonable” enquiries about whether a loan is suitable for the applicant.

The commission has revealed some banks did not actually verify the expenses customers provided in their loan applications, instead relying on statistical indexes such as the Household Expenditure Measure as a proxy for what you need to live on.

Within weeks of the March hearings into consumer lending, Westpac last month started requiring customers to break down their spending into detailed categories including gym memberships, streaming services or pet insurance.

Of course it is prudent for banks to ask questions like this of their applicants.

But as the public pressure on banks shows no signs of abating, some banking veterans and experts believe the change in banks’ behaviour caused by the royal commission could have significant effects on the basic bank business of lending money.

Analysts at investment bank UBS have warned of the risk of a royal commission-induced “credit crunch”, saying that if banks assumed more realistic living expenses, the maximum amount customers would be able to borrow could fall by as much as 30 to 40%

David Murray, chair of the 2014 financial system inquiry and former chief executive of the Commonwealth Bank, says further government intervention in banks’ lending decisions could harm competition and increase prices.

“Tightening of the laws is potentially a bad thing for credit generation in the economy,” Murray tells The Sydney Morning Herald and The Age.

David Murray.

Photo: Karen Maley

Further, Murray warns that extending “responsible lending” laws to place further obligations on banks can raise the risk of “moral hazard” – the idea that borrowers might start to assume they have less onerous obligations to pay back their bank. This was one cause of the United States sub-prime debt crisis, where borrowers could effectively walk away from their loans if they were unable to repay their debt, because banks did not have access to other assets.

Final recommendations from Hayne won’t be known until next February, but Murray also fears that the red-hot political environment means the shocking behaviour of rogue bankers being exposed is not being seen in its broader context.

“I think it’s a significant risk, particularly in this political climate but also because of the way the commission has had to do its work,” Murray, who on Friday was announced as AMP’s new chairman, says. “We’ve seen some important cases, but we don’t yet know the actual size of the problem.”

Murray acknowledges there is a need for further policy action in  financial advice, an arena where the commission last month revealed a litany of problems including consumer rip-offs, bad advice and other misbehaviours.

Chief Executive Officer of the Financial Planning Association, Dante De Gori outside the royal commission

Photo: AAP

But even in advice, where most agree there are serious problems, there are no easy fixes.

Westpac chief Brian Hartzer, who previously worked in England, last week stated the introduction of much tougher advice laws there had caused many banks to desert the sector. That resulted in fewer people receiving advice, he said, despite the accepted wisdom that most of us would benefit from receiving advice on issues such as insurance and retirement structures.

Financial Planning Association chief executive Dante De Gori said it was not yet clear what impacts any recommendations from the royal commission might have on the cost of financial advice for consumers, but there definitely would be an impact.

“It’s very difficult to see how it would not impact the cost factor,” he said.

A suggested “structural” change from the royal commission would be to stop advisers’ pay packets being cross-subsidised through the sale of financial products, and this would be a good thing, De Gori adds.

National Australia Bank’s chief executive Andrew Thorburn this week summed up the banks’ overarching concerns by saying the royal commission’s unrelenting focus was causing banks to become more “timid”.

“I think there is a possible trend towards people being more careful … and culturally maybe becoming more meek & mild,” Thorburn said.

“And I think we have to be mindful of that, because the bank needs to make decisions and to take risk in order to help our clients grow.”

Given some of the startling bad conduct exposed by Hayne, many critics would applaud the idea of more “timid” bankers.

NAB chief executive has warned banks could gravitate to becoming meeker.

Photo: Bloomberg

But the banking structure – for all its flaws – plays a critical role in greasing the wheels of capitalism by pumping credit into the economy. So greater timidity will have some consequences.

Thorburn does not say the royal commission will dampen credit growth, but he makes the case that banks are “crucial” for the economy’s outlook, including their role in importing the foreign capital it needs to move ahead with growth.

“We import 30 per cent of capital, fund the Australian economy,” Thorburn says.

Capital Economics economist Paul Dales argues that how much credit gets pumped into the economy – and the effect of the royal commission on banks – is “one of the most important things will happen to the economy over the next several years”.

The real risk is that house prices fall further and faster than the gradual, fairly modest decline we are currently expecting.

Paul Dales

Some of this effect could occur through banks lending to small businesses, he says, but the main impact would be through the mortgage loan market, which would directly impact house prices.

House prices are already falling in Sydney and Melbourne, with the slump blamed on tougher lending rules for property investors, a surge of new housing units coming onto the market and buyer exhaustion after years of strong growth.

Dales doesn’t see a credit “meltdown”. But he points to the possibility that if Labor wins the next election, the property market would face a “double whammy” – tighter lending conditions as well as negative gearing is curbed and capital gains tax concessions are cut back. Interest rates may just also start to rise, further softening prices.

“The actual risk is that house prices fall further and faster than the gradual, fairly modest decline we are currently expecting,” Dales says.

Tim Lawless, chair of research at property data analysts CoreLogic, also says banks’ credit policies and the outcome of the royal commission will be important factors on what happens in the property market, which he thinks will remain weak.

“I think the most likely outcome is what we’ve seen in recent months, which is values drifting lower in Sydney and Melbourne. But we are not expecting a sort of material acceleration in that rate of decline.”

The risks posed by Australia’s record household debt and very high house prices are well known – would it ractually be a problem if all this were to go slower?

Not at all, says respected independent economist Saul Eslake, who has long highlighted the social equity problems created by Australia’s long-running housing boom.

He says it’s “plausible” tighter lending conditions would further drag down the property market, and “it may well mean slower economic growth, all else being equal”. But Eslake says it is simply not sustainable to fuel growth with ever-increasing debt.

For all the warnings from bankers, there could even be a silver lining from the royal commission’s rigid scrutiny.

Professor Kevin Davis, a member of the 2014 financial system inquiry panel, points out that  curbing some of the more marginal lending by banks could eventually be good for the finance industry, by saving our lenders from the sub-prime debt problem they greatly avoided before the global financial crisis.

“To the extent they’ve been slack, then you might say hopefully we have got in early enough before we got to a situation like the US did,” Davis says.

As for Tassits, she has now rejoined her gym. Yes she has her home loan as well.HAPPY ENDING.

Henry Sapiecha

 

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Home loan rates review – Spring 2017 Compare the rates of 66 different lenders from MOZO

Posted by Henry | BANKS,BORROWING LENDING,HOME LOANS,INTEREST RATES,MORTGAGES,RATE % COMPARISONS,REFINANCE | Monday 6 November 2017 11:56 am

*HOW DOES YOUR LOAN RATE COMPARE? ARE YOU BEING RIPPED OFF?

*DOES YOUR LENDER CONFORM TO THE CREDIT ACT? BE WARNED…..

*DO YOU KNOW THE DIFFERENCE BETWEEN A VULTURE & A LENDER?

*WHY DO SOME LENDERS CHARGE DOUBLE THESE RATES & HAVE ATTITUDE?

Take this information to your lender & ask why you are not getting a good deal.

Key Points

  • Spring home loan season kicks off with fierce rates competition
  • A record 66 lenders are now offering variable rates below 4.00%
  • Average Big 4 bank variable rate now 1.20% higher than lowest on market

Fierce lender competition for prime home loan customers is delivering a rate cut bonanza for owner-occupier borrowers this spring.

23 lenders have already cut variable rates to coincide with the spring property season, and Mozo’s data reveals that a record 66 lenders are now offering variable home loan rates below 4.00%.

Aussie, ING, CommBank and Westpac are among lenders to cut variable rates in recent weeks, with more lenders expected to follow as peak property season heats up.

According to Mozo Director Kirsty Lamont, the level of competition on the home loan rates front is higher than usual this spring.

“Spring is traditionally peak season for home loan offers, and this season we’re seeing intense competition amongst lenders driving owner-occupier variable rates to new record lows”, said Ms Lamont.

Home Loan Rates – October 2017

         www.loans.com.au

          Essentials Variable 80 Homebuyer Special

  • Owner Occupier, Principal & Interest

    interest rate 3.54% p.a. variable

    comparison rate* 3.56% p.a.

    Discounted Variable Home Loan (Premium Plus Package)

    Owner Occupier, Principal & Interest

    interest rate 3.64% p.a. variable

    comparison rate* 4.03% p.a.

    Advance Variable Home Loan

    Owner Occupier, Principal & Interest

    interest rate 3.65% p.a. variable

    comparison rate* 3.66% p.a.

    Discounted Home Value Loan

    Owner Occupier, Principal & Interest

    interest rate 3.65% p.a. variable

    comparison rate* 3.66% p.a.

    Basic Home Loan Special

    LVR<80%, Owner Occupier

    interest rate 3.74% p.a. variable

    comparison rate* 3.75% p.a.

    UHomeLoan – Value Offer

    Owner Occupier, Principal & Interest

    interest rate  3.74% p.a. variable

    comparison rate* 3.74% p.a.

    Low Rate Home Loan with Offset

    LVR<80%, Owner Occupier, Principal & Interest

    interest rate 3.69% p.a. variable

    comparison rate* 3.72% p.a.

    Kickstarter Home Loan

    Owner Occupier, Principal & Interest

    interest rate 3.72% p.a. variable

    comparison rate* 3.75% p.a.

    Base Variable Rate Home Loan

    Owner Occupier, Principal & Interest

    interest rate 4.17% p.a. variable

    comparison rate4.21% p.a.

    Equaliser Home Loan

    Owner Occupier

    interest rate 3.72% p.a.variable for 36 months and then 4.32% p.a. variable

    comparison rate*4.19% p.a.

*The Comparison Rate combines the lender’s interest rate, fees and charges into a single rate to show the true cost of a home loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years, and applies only to this example. Different amounts and terms will result in different comparison rates. Full comparison rate schedules are available from lenders. Costs such as redraw fees or early repayment fees, and savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

Look beyond the big banks for the best ratesBorrowers who choose smaller lenders over the big banks can access huge rate savings right now. The average big 4 bank variable rate for a $300,000 owner-occupier loan is 4.64%, a whopping 1.20% higher than the lowest available rate of 3.44%.

“Owner-occupiers looking to buy a home or refinance their current home can secure an incredibly competitive home loan deal this spring if they’re prepared to shop around and consider loans from smaller lenders”, said Ms Lamont.

Rates not so rosy for investors

On the other side of the coin, housing investors are still feeling the pain of APRA’s risky lending regulations.  Australia’s new two-tier home loan interest rate market sees investors continue to pay more for debt and face stricter lending criteria.

Investors are typically paying an interest rate premium of around 27 basis points compared to owner occupier borrowers, according to Mozo’s data.

How to secure the best home loan this Spring:

1. Jump online to compare the best home loan rates on the market

2. Be prepared to look beyond the big banks and go with a smaller lender

3. Go for principal  & interest repayments as interest only loan rates are higher

4. Check for upfront fees, ongoing fees and any exit fees on your current loan if you’re refinancing

5. Consider loan features that can help reduce your interest and pay off your loan faster, like free extra repayments and an offset account

*** Interest rates and home loan data in this article are correct as of time of writing. Average rates based on $300,000 owner-occupier loan with 80% LVR.

Henry Sapiecha

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Australian Bankers’ Association to appear at public hearing

Posted by Henry | BANKS,EVENTS FAIRS FESTIVALS,GOVERNMENT | Thursday 16 February 2017 10:56 am

oz-fed-gov-logo image www.australianmortgageloans.com

The Australian Bankers’ Association (ABA) will join the four major banks at the House of Representatives Standing Committee on Economics’ public hearings in March for the review of the performance of Australia’s banking and financial system.

One of the committee’s focus areas is on how individual banks and the banking industry as a whole are responding to issues previously raised in Parliamentary and other inquiries, including through the Australian Bankers’ Association’s April 2016 six point plan to enhance consumer protections and in response to Government reforms and actions by regulators.

The Chair of the committee, Mr David Coleman, MP, stated that ‘these hearings provide an important mechanism to hold the banking sector to account before the Parliament’.

‘As the ABA is charged with addressing numerous issues of concern to consumers, it is important that they are scrutinised by the committee.’
Public Hearing Details:
Public hearing day 1

Friday, 3 March 2017
Committee Room 2R1,
Parliament House, Canberra
NAB – 9.15am to 12.15pm
Public hearing day 2

Tuesday, 7 March 2017
Main Committee Room,
Parliament House, Canberra
CBA – 9.15am to 12.15pm
ANZ – 1.15pm to 4.15pm
Public hearing day 3

Wednesday, 8 March 2017
Main Committee Room,
Parliament House, Canberra
Westpac – 9.15am to 12.15pm
ABA – 1.15pm to 3.15pm

commercial business loans info flyer www.money-au (6)

www.money-au.com

www.ozrural.com.au
Henry Sapiecha

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Customers use credit rate cut to get ahead on mortgages

Posted by Henry | BANKS,HOME LOANS,INTEREST RATES,RATE % COMPARISONS,RBA,VIDEO AUDIO MOVIES | Monday 29 August 2016 9:37 am

After the Reserve Bank cut official interest rates to a new record low this month, figures from two big lenders demonstrate customers have a growing safety buffer against a financial shock, because they are paying more than the minimum repayment.

1472412921782

RBA cuts interest rates

The Reserve Bank drops interest rates to a record low of 1.5 per cent.

Separate analysis shows a typical mortgage borrower would have paid off an extra $18,250 on their home loan if they had left their mortgage payments unchanged since the RBA began cutting interest rates in late 2011.

As interest rates have plumbed record lows in recent years, home loan customers have on average taken the opportunity to repay their bank faster, which slows growth for banks.

Interest rate cuts have given many households a growing buffer against financial shocks. 

The trend is likely to pick up after the latest rate cut, as National Australia Bank, Commonwealth Bank and ANZ Bank have a policy of leaving customers’ mortgage payments the same when their monthly interest bill falls. Westpac is the exception – it drops the monthly repayments of its customers when rates fall where it has set up a direct debit.

NAB said that on average, its customers were nearly 15 months ahead of their minimum repayments, up from 14 months a year ago and 12 months in 2012.

CBA’s result this month also showed more borrowers paying off their mortgages ahead of schedule, with 77 per cent of customers ahead of their minimum payments at CBA. Including mortgage offset accounts, CBA customers were ahead by an average of 31 months on their loan repayments, up from 27 months a year earlier.

NAB’s general manager of home lending Meg Bonighton,said customers had the option of reducing their repayments, but the default for the bank was to leave repayments unchanged.

“Four years ago, the average home loan account was 12 months ahead on its repayments; today, it’s almost 15 months ahead. This is great to see, because it means our customers are closer to paying off their mortgages, and are paying less interest,” she said.

“When interest rates are reduced, the monthly repayment amount remains the same unless the customer requests to change it. Some customers do choose to reduce their repayment amount, while some choose to keep it the same.”

Over several years, customers can knock thousands of dollars off their loans keeping payments unchanged as rates fall.

If a customer with a $300,000 loan had kept their minimum monthly payments unchanged since the RBA began cutting interest rates in late 2011, they would be $18,250 further ahead on their mortgage principal, according to interest rate comparison website Mozo.

That assumes a 30-year loan with minimum monthly payments of $2108 a month and an interest rate equal to the average major bank standard variable rate.

While the trend points to an improvement in some households’ financial position, it also highlights the limitations of cutting interest rates as a way of boosting the economy.

UTXW4UYTR

Henry Sapiecha

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Home loans getting cheaper as lenders wage war

Posted by Henry | BANKS,INTEREST RATES | Tuesday 22 September 2015 7:56 am

There is a widening gap between the most competitive deals in the market and the average rates offered by the major banks image www.australianmortgageloans.com

There is a widening gap between the most competitive deals in the market and the average rates offered by the major banks. Photo: Louie Douvis

Some smaller lenders have slashed advertised interest rates on new owner-occupier mortgages by twice as much as the Reserve Bank of Australia.

The central bank cut official interest rates by 0.5 percentage points to 2 per cent over the past year to stimulate the economy. Several lenders have cut their most competitive advertised home loan interest rates for new borrowers by significantly more than this, figures from interest rate comparison website Mozo show.

The cuts have been prompted by fierce competition in mortgages, the biggest source of credit growth for banks.

RBA governor Glenn Stevens image www.australianmortgageloans.com

RBA governor Glenn Stevens expects some borrowers who have called themselves investors will become owner-occupiers. Photo: Louie Douvis

The most competitive rate offered by small lenders Credit Union SA and Community First Credit Union-owned Easy Street had fallen by more than 1 percentage point in the last year, with both offering loans at 3.99 per cent, while online bank ING Direct was also offering rates of 3.99 per cent, Mozo said.

The best home loan rate offered by National Australia Bank had also fallen 0.93 percentage points to 4.15 per cent in the past year, while Westpac’s rate had fallen 0.89 percentage points to 5.08 per cent, Mozo said.

“Margins are healthy right now, funding costs are fairly moderate, and the smaller lenders are taking advantage of the traditional spring property market to try to ramp up their loan books,” Mozo director Kirsty Lamont said.

house $20 oz bank note image www.australianmaortgageloans.com

Competition is pushing down interest rates offered to new owner-occupiers. Photo: James Davies

Mozo’s figures are based on the best rates available to an owner-occupier taking out a new loan who has a 20 per cent deposit and is borrowing $300,000 over 25 years.

Rate cuts of this size have not necessarily been passed on to existing borrowers as banks’ specials are typically available to customers taking out a new loan or refinancing.

Ms Lamont also said there was a widening gap between the most competitive deals in the market and the average rates offered by the major banks.

Mozo data shows the average home loan interest rate offered by the big four bank is 4.86 per cent, which is 1.02 percentage points higher than the cheapest rate in the market, from iMortgage, owned by non-bank lender Homeloans.

Banks are targeting owner-occupiers because the Australian Prudential Regulation Authority wants lenders to slow their growth in the housing investor loan market to less than 10 per cent from the present 10.8 per cent.

In another sign of the competition for owner-occupiers, NAB last week said it would offer new borrowers in this segment enough frequent flyer points for two return flights to London.

The focus on owner-occupiers comes after most major lenders have raised interest rates for housing investors by 0.27 percentage points, opening up a two-tier interest rate market where investors pay more for debt.

Since these hikes were announced in July, thousands of customers had contacted their banks to update records so their loan was classified as an owner-occupied loan.

Reserve Bank governor Glenn Stevens on Friday said this trend would continue.

“I predict we will now see a number of people who used to call themselves investors are going to call themselves owner-occupiers because the relative pricing has changed. That will lead to some interesting dynamics, I suspect, over the next year,” Mr Stevens said.

ooo

Henry Sapiecha

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MORTGAGE ARREARS, DEFAULTS & FORECLOSURES ON HOMES IN MINING TOWNS

Posted by Henry | BANKRUPTCY,BANKS,GETTING OUT OF DEBT,HOME LOANS,MINING TOWNS | Thursday 27 August 2015 2:19 am

Mining regions are experiencing higher rates of mortgage arrears, Fitch Ratings says image www.australianmartgageloans.com.au

Mining regions are experiencing higher rates of mortgage arrears, Fitch Ratings says. Photo: Manfred Gottschalk

Job cuts in the resources sector are causing more households in mining regions to fall behind on their home loans, highlighting the risk to banks from the commodities slump.

Mortgage arrears rates are rising in mining regions across Queensland, Western Australia and the Northern Territory, Fitch Ratings said, due to deep costing cutting by miners.

At the same time, the house price boom in Sydney has dragged down the share of borrowers falling behind in suburbs in the city’s west and southwest – areas that have historically had among the highest loan delinquency rates in the country.

Mackay in central Queensland, a hub for the struggling coal industry, became the region with the highest share of loans by value that were more than 30 days in arrears, at 2.01 per cent.

This occurred after the region, which includes the Hay Point coal terminals, posted the sharpest deterioration in arrears in the six months to March, with a lift of 0.59 percentage points.

Regional Western Australia, which includes mining hubs such as Broome and Kalgoorlie, was the second-worst performing region, with an arrears rate of 1.88 per cent.

Fitch said mining-heavy areas of the Northern Territory were also affected by the trend.

“The slowdown and job cuts in the mining industry have hit non-metropolitan regions in the outback of Western Australia, in Northern Territory, and in the north and outback of Queensland,” the report said.

Despite more loans in mining areas falling into arrears, Fitch analyst James Zanesi said there had previously been higher arrears rates of 2.5 per cent to 2.6 per cent in other areas, such as Fairfield and Liverpool in Sydney or the Gold Coast after the global financial crisis.

“It’s the worst performing region, but in the past we’ve had worst performing regions with a higher delinquency rate,” Mr Zanesi said.

The best performing areas, in contrast, were the inner suburbs of Perth, Sydney, Brisbane and Melbourne.

The report also said there had been a “remarkable” improvement in performance in outer west Sydney, Fairfield and Liverpool, and the central coast of NSW, which had been among the worst performing regions in the past decade.

The 30-day arrears rate had fallen from 1.92 per cent to 1.19 per cent in Fairfield-Liverpool in the year to March. While this is still higher than average, the improvement is significant.

Mr Zanesi said one reason for this change was Sydney’s booming housing market, which allows banks to sell houses with mortgages in default more quickly, moving them off their books. Borrowers in difficulty are also more likely to sell their house before defaulting when prices are rising.

“If you have a booming housing market you actually have an opportunity to sell the property before financial difficulties materialise,” he said.

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Henry Sapiecha
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ASIC catches out banks on interest-only home loans

Posted by Henry | ASIC,BANKS,INTEREST RATES | Thursday 20 August 2015 9:52 am

ASIC has uncovered flaws in banks' interest-only home lending image www.australianmortgageloans.com

ASIC has uncovered flaws in banks’ interest-only home lending. Photo: Sasha Wooley

Banks and other lenders have been put on notice by the corporate watchdog after it found significant flaws in credit standards in the booming interest-only mortgage market.

The Australian Securities and Investments Commission sent banks a blunt message to lift their game on Thursday, as it released a critical review into how 11 lenders, including the big four, were assessing customers for interest-only mortgages.

Interest-only loans account for $479 billion in mortgages, 37 per cent of home loans held by banks, building societies and credit unions, and have been growing rapidly.

In findings it described as “troubling,” ASIC identified instances where lenders’ practices may be putting customers at risk, in turn falling short of responsible lending obligations.

A review of 140 customer files found that in 40 per cent of cases, lenders wrongly calculated how much time borrowers had to repay the principal when the interest-only period of the loan ended, assuming they had more time than was actually the case.

In more than 30 per cent of files, there was no evidence the banks had properly considered whether an interest-only loan was appropriate for the borrower.

And in more than a fifth of cases, the lender had not properly assessed the borrower’s living expenses.ASIC deputy chairman Peter Kell signalled the regulator’s concerns were broad-based.

“It’s not a case where we found there were just two or three bad apples so to speak, this is a message to the entire industry. Lift your game when it comes to responsible lending around interest-only loans,” Mr Kell said.

Major banks backed the regulator’s calls, with Westpac saying it was working to address ASIC’s recommendations.

An ANZ spokeswoman said the report provided “appropriate recommendations to all key participants in the industry which will ensure interest-only home lending practices remain consistent with responsible lending obligations of all Australian credit licence holders.”

A National Australia Bank spokeswoman said the bank was “supportive of ASIC’s recommendations and any moves to further strengthen lending practices in the industry.” CBA said it “constantly” reviewed lending standards to ensure they were prudent.

Demand for interest-only home loans has jumped by 80 per cent since 2012, and interest-only loans accounted for a near-record 42 per cent of all home loan approvals in the March quarter.

While they are most popular with investors, who can claim a tax break on interest payments, owner-occupiers accounted for 41 per cent of interest-only loan approvals in December last year.

Mr Kell said delinquency rates on interest-only loans were low, but ASIC had acted to review the sector “before significant problems emerge.”

Penalties for breaking responsible lending laws can be up to $1.7 million per breach, and ASIC chairman Greg Medcraft said ASIC would consider individual action against lenders over the issue.

“We can do this the hard way, or we can do this the easy way,” he said.

“We’ve gone out and we are disclosing these results today, we will look at taking some action, investigation and enforcement, and most importantly we will be back,” Mr Medcraft said.

ASIC plans to revisit the issue in the second half of 2016.

The report said a “high” proportion of interest-only home loans were written by mortgage brokers, some of whom may have an incentive to write interest-only loans because it could lead to a larger trailing commission payment.

CLSA banking analyst Brian Johnson said the report was a further sign credit standards were not as high as banks had previously said.

While stressing ASIC’s report should not be overplayed, he said it also raised the risk that contracts were not enforceable if a lender had not followed responsible lending obligations

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Henry Sapiecha
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Westpac caps LVRs on investor mortgages at 80pc on loans

Posted by Henry | BANKS,HOME LOANS | Wednesday 8 July 2015 8:19 am

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Westpac and the other major banks are taking action to curb investor lending. Photo: Glenn Hunt

Australia’s biggest lender to landlords, Westpac, will require new property investors to have a deposit of at least 20 per cent, as banks escalate their attempts to dampen the booming growth in borrowing by housing investors.

Westpac will from Wednesday cap loan-to-valuation ratios (LVRs) for new property investor loans at 80 per cent, the toughest limit imposed by a major bank so far.

ANZ Bank is also introducing a 90 per cent cap on LVRs for investor loans as well, which will take effect on Wednesday as well.

National Australia Bank last month capped investor home loan LVRs at 90 per cent, while the Commonwealth Bank has said it will not take the tax breaks borrowers receive from negative gearing into account when LVRs on investor loans exceed 90 per cent.

Westpac’s change is the latest step by a bank to slow in growth in housing investor credit – which expanded at 10.4 per cent in May – in response to the banking regulator’s 10 per cent a year speed limit in this part of the market.

The Australian Prudential Regulation Authority announced the cap in December but official measures of investor credit growth have failed to slow in the first few months of the year, prompting the regulator to up the pressure on lenders.

A Westpac spokeswoman confirmed the introduction of an 80 per cent LVR cap for investor loans and pointed to APRA’s cap.

“As mentioned earlier this year, we are making appropriate changes to ensure we are in line with a 10 per cent benchmark set by APRA for investment property loan growth,” she said.

ANZ’s note to brokers, sent on Monday said: “The housing market is experiencing strong growth across investor lending. In light of these conditions and recent regulator guidelines, ANZ is adjusting its appetite for investor loans and reviewing our serviceability standards.”

Previously, Westpac had allowed housing investors to borrow up to 95 per cent of a property’s value.

The note to brokers said that if borrowers were able to provide two or more properties for security, and one is owner-occupied, these customers may still be able to borrow more than 80 per cent of a property’s value.

A mortgage broker in Sydney, Andrew Woods, said this would make it tougher for people with fewer assets – including first home buyer investors – to enter the market as investors.

“If you’re already rich, with a valuable owner-occupied home, you are going to be fine,” Mr Woods said.

“It’s going to knock out the small-time investors who may be trying to buy their first investment property.”

Westpac’s $150.9 billion investor home loan portfolio is the largest in the country, according to latest statistics from APRA.

In the year to May, Westpac, ANZ and NAB all expanded at a quicker pace than the regulator’s 10 per cent a year speed limit but the banks have vowed to slow down over the coming months.

The banks’ more recent focus on LVRs comes after various other changes from banks in May and June, which included cutting interest rate discounts for investors and a toughening in underwriting standards.

In a sign some of these changes may be having an effect, two of the countries biggest mortgage brokers, Mortgage Choice and AFG, both this week reported a significant decline in the proportion of new loans going to property investors.

Regulators are especially concerned about Sydney’s housing market, where the share of loans going to investors is at record highs and prices rose 16.2 per cent in the year to June 30, according to CoreLogic RPData.

AFG managing director Brett McKeon said that if the recent decline in new lending to property investors continued, it “should help allay concerns about overheating in Sydney.”

Some economists believe the Reserve Bank may be more inclined to make further cuts in official interest rates as measures to rein the borrowing by investor borrowers take effect.

After leaving the cash rate on hold at a record low of 2 per cent on Tuesday, RBA governor Glenn Stevens said the central banks was “working with other regulators to assess and contain risks that may arise from the housing market”.

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Henry Sapiecha

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Lenders ‘conservative’ with low-deposit loans on investment homes

Posted by Henry | BANKS,HOME LOANS,INTEREST RATES,INVESTMENTS | Monday 1 June 2015 10:19 am

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Banks are considering tighter rules on deposits as they try to slow housing investor credit growth.

Banks are offering fewer low-deposit home loans, another sign of tightening credit standards in the mortgage market.

Figures from comparison website RateCity show the share of home loans in its database with a maximum loan-to-valuation ratio (LVR) of 95 per cent has edged down from 72 per cent to 71 per cent in recent months.

It comes as banks consider tighter LVRs as another response to the financial regulator’s demand that housing investor credit growth slows to no more than 10 per cent.

“At the same time as it is becoming cheaper to borrow, there are fewer loans available to buyers with a small deposit,” RateCity spokeswoman Laine Lister said.

Repeat of 2008

Otto Dargan, managing director of mortgage broker Homeloanexperts.com.au, said that while many lenders’ products still allowed LVRs of up to 95 per cent, in reality they were being “conservative” in assessing applications.

“This is a repeat of what we saw in 2008, when the banks backed away from 90 per cent and 95 per cent loans,” Mr Dargan said.

Commonwealth Bank subsidiary Bankwest introduced a maximum LVR of 80 per cent for housing investor loans in May, and Mr Dargan said more lenders were likely to change their policies in this area.

“This is just the beginning, when one bank changes their policy, then investors and mortgage brokers flock to the ones that are still open for business,” he said.

Imposing tighter rules on deposits has been a key response to overheating housing markets overseas, notably New Zealand, which is requiring investors in Auckland residential property to produce a 30 per cent deposit.

Steady decline

RateCity’s figures only indicate the products banks are offering to customers, not actual their lending behaviour, but there has also been a steady decline in the share of home loans going to borrowers with small deposits in recent quarters.

The share of loan approvals with LVRs of 90 per cent or higher fell to its lowest level since December 2010 in the March quarter, official figures showed last week.

Banking sources said tighter LVR rules was one of several “levers” being  considered by lenders if housing investor credit growth does not slow to under the Australian Prudential Regulation Authority’s 10 per cent cap.

The Reserve Bank has been reluctant to clamp down on LVRs because it argues this would make it even more difficult for first home buyers to enter the market.

So far, few Australian banks have introduced LVR caps, with all of the big four lenders instead cutting interest rate discounts for property investors.

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Henry Sapiecha

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