Boost Hangover

Written by admin on January 31, 2010 – 10:45 am

Only a month after the end of the government’s First Home Owners Boost, and cracks are appearing with both borrowers and lenders caught up in the frenzy.

The Sunday Telegraph today reports that almost half of the 135,000 first home buyers coax into the First Home Buyers Boost are struggling to meet their mortgage repayments with many in arrears. In a survey of 26,000 of the borrowers, Fujitsu Consulting found that 45% were either in mortgage stress or severe mortgage stress.

The problem of mortgage stress effects more than just First Home Buyers. The Mortgage Finance Association of Australia/Bankwest Survey of 850 people across Australia indicates approximately 16 per cent of owners struggled to replay home loans in November, up from 11.7 per cent in May.

But it is not only home owners which are struggling. Both the Westpac and Commonwealth Banks took on First Home Buyers last year like a cat in a mouse plague and are now licking their wounds.

The Australian Prudential Regulation Authority (APRA) requires that banks to take out lenders’ mortgage insurance (LMI) on loans with a Loan Value Ratio (LVR) over 80% and this insurance is passed onto the buyer. The majority of First Home Buyers had little in the way of deposits, outside of the grant and the boost.

As Westpac has two mortgage insurance subsidiaries, Westpac LMI Limited and St George Insurance Australia Limited, APRU requires the bank to put aside the premiums, it can’t adsorb it into its normal operations. BusinessDaily believes Westpac has had to increase the paid up capital of its mortgage insurance subsidiaries by more than $330 million.

As a result, the Westpac Bank has lowered its loan to value ratios on standard variable mortgages from 92 to 87%, requiring borrowers to either have much more substantial deposits, or borrow less with the deposit they have. Low doc loans have also been reduced to 80%. If the rest of the Australian mortgage market follows suit, this could easily spell the end for Australia’s overinflated housing bubble.

» Aussie’s struggle to foot mortgage bill – The Sunday Telegraph, 31st January 2010.

» More Australians Struggle With Mortgage Payments, MFAA Says – Bloomberg, 29th January 2010.

» Insurance blowout weighs on Westpac – Herald Sun, January 27th 2010.


Posted in Australian Housing | Comments Off

US First Home Buyers Tax Credit ends in a Bang

Written by admin on January 26, 2010 – 11:12 am

Sales of existing homes in the United States fell 16.7 per cent in the month of December, the biggest monthly drop in 40 years.

American First Home Buyers were eligible for a Tax Credit of up to $8,000 which was due to expire on the 30th November 2009, however Congress decided to extend the grant to April 30th and bolstered it to include a $6,500 credit for existing buyers.

Despite the extra interference from Congress, the rush to qualify for credit ultimately resulted in the crash wiping off the 4.9% gains made in the year.

The Australian Government has made no indication yet that it will extend the First Home Owners Boost, which expired on the 31st December.

» Existing home sales plummet 16.7% in December – Market Watch, 25th January 2010.


Posted in Australian economy, Australian Housing | Comments Off

Rental Crisis Ends

Written by admin on January 24, 2010 – 12:31 pm

The rental crisis has ended with property developers flooding the market with apartments they have been unable to sell and renters finding cheaper accommodation with the knowledge times are hard and they are worried about their jobs. The number of vacant properties in Melbourne, Sydney and Brisbane has returned close to long term averages.

SQM Research managing director Louis Christopher says it debatable if capital cities are seeing rental shortages. “I think it’s very debatable whether there is a shortage… and especially in Melbourne whether there is one or not. We have to be careful about how this is discussed, because the topic is certainly up for debate.”

It’s believed the free flow of capital in the last decade has contributed to rising prices and not a shortage of homes. This is contrary to Real Estate and Housing Industry lobby groups who have been flogging housing shortages like there is no tomorrow. The free flow of capital is likely to dry up quickly with the lead from Westpac this week in reducing LVRs.

In Melbourne vacancy rates increased from 3.1% to 3.5%, Brisbane saw an increased from 2.9% to 3.4% and in Canberra the figure increased from 0.7% to 0.9%.

Data shows a trend of renters moving to cheaper accommodation in the outer suburbs. “If you know times are hard and you’re worried about your job, chances are you will opt for cheaper rent. People are opting for a $600-a-week rent now, rather than, say, $1000 a week — it’s as simple as that.”

This will put a spanner in the works for landlords who have been pumping up rents in an economy where wage rises have been close to non-existent and the reduction in the hours worked has been common. These people, faced with rising rents have no choice but to vacate and move to cheaper accommodation.

Louis Christopher also reports the national vacancy rates have been driven by developers who have had to release apartments onto the rental market as they have been unable to sell them.

In Sydney, areas like Rhodes who have a huge number of apartments being built has a rental vacancy rate of 10.9%. Along the Pacific Highway and the rail corridor, Gordon is trailing a little behind at 8.3% and Turramurra is 7.6%

Mr Christopher also indicates that to a lesser extent, many home owners also unable to sell their properties have been forced to rent them out, adding to stock levels.

» Rise in rental vacancies raises questions about housing shortage and soaring prices – Smart Company, 24th January 2010.
» Budget renters ease inner-city squeeze – The Australian, 23rd January 2010.


Posted in Australian economy, Australian Housing | 3 Comments »

Westpac tightens credit due to funding problems

Written by admin on January 20, 2010 – 12:34 pm

In what has been a shock to brokers, Westpac has written to mortgage brokers informing them RAMS branded products will no longer be distributed to third parties, and only marketed to its 92 franchised stores. The Herald Sun writes “WESTPAC’S funding problems have forced it to shut down a key part of the RAMS Home Loans business. ”

This follows the lowering on the loan value ratios (LVR) on Westpac’s own branded standard variable mortgages on Monday from 92 to 87 per cent. It has also lowered the LVR on more risker low documentation loans to 80 per cent.

The lowering of the LVR will mean home buyers are required to contribute a larger deposit before they can get a loan.

» Westpac cuts brokers from RAMS loans – The Herald Sun, 19th January 2010.

» Westpac turns off tap – The Herald Sun, 20th January 2010.


Posted in Australian economy, Australian Housing | 2 Comments »

Spike in lending losses causes Colonial to freeze mortgage fund withdrawals (again)

Written by admin on January 15, 2010 – 12:48 pm

The Commonwealth Bank of Australia’s Wealth Management Provider, Colonial First State has been forced to freeze withdrawals from a $850 million mortgage income fund after an increase in bad debts. Colonial has $2.6 billion in funds invested in mortgages.

» Colonial Freezes A$850 Million Mortgage Fund, Herald Says – Bloomberg, 14th January 2010.


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Shock plunge in home loan approvals

Written by admin on January 12, 2010 – 6:42 pm

Today’s ABS figures show a shock plunge in the number of loans taken out by owner-occupiers in November. Loans to owner-occupiers fell 5.6%. While the average economist only forecasted a drop of 2.3%, it should have been expected the winding back of the First Home Buyers Boost would have had some effect.

Loans for the construction of new dwellings fell 6.5%, while loans for the purchase of newly-built dwellings fell 5.1%

Meanwhile, data from the Australian Finance Group paints an even bleaker picture for December. According to AFG, there was a 21.2% fall in the number of applications for new mortgages in December, the last month of the scaled down First Home Owners Boost.

» Shock plunge in home loan approvals – Yahoo 7, 12th January 2010.

» Housing sector hit by rate rises, end of grant – The Australian, 6th January 2010.


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Australian Regulator prepares for Bank Failures

Written by admin on January 7, 2010 – 2:27 pm

Yesterday the Australian Prudential Regulation Authority (APRA) released a discussion paper detailing the proposed Financial Claims Scheme (FCS).

The paper details procedures ensuring when an Australian Deposit taking Institution (ADI) goes insolvent, there is adequate information to enable depositors to be paid promptly. This includes how end of day balances are calculated, potential payout options, the aggregation of accounts to ensure that each account-holder is able to be identified.

Last year in the U.S., the FDIC (Federal Deposit Insurance Corporation) closed 140 banks who where deemed insolvent.

» APRA consults on implementation of Financial Claims Scheme – APRA Media Release, Wednesday, 6th January 2010.


Posted in Australian economy, Australian Housing | 2 Comments »