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Borrowers Risk Averse
No interest in soft landings
By John Kavanagh | August 6 2008 | The Sydney Morning Herald & The Age (subscribe)
A survey of borrowers shows that people are becoming risk averse and wary of signing up for the very mortgage products - such as family guarantee loans, no-deposit loans and longer-term mortgages - that are designed to make it easier for them to get into a home.
Despite the weaker residential property market and falling prices, affordability has nevertheless deteriorated because of higher rental costs and higher interest rates pushing up mortgage repayments.
The latest Genworth Financial Mortgage Trends Report, based on a survey of 2000 adults, reveals that 16 per cent of Australians do not expect to ever buy a residential property. That figure has risen sharply, from 6 per cent last year and 4 per cent in 2006.
Almost half (42 per cent) said they had not been able to save the deposit for a home loan and 39 per cent said they did not think they could make the mortgage repayments.
The Genworth survey supports the findings of other affordability surveys.
The Housing Industry Association's affordability index has been falling (meaning houses are less affordable) for five years and hit a record low at the end of last year.
Furthermore, according to the Demographia International Housing Affordability Survey, the median Australian house price is 6.3 times median household income. This is a higher multiple than the US, Canada, New Zealand, Ireland and Britain. It is more than twice Demographia's "affordable" multiple of three times income and was rated "severely unaffordable".
What surprised the Genworth researchers was that products being developed by lenders to help people get into the housing market were not popular with borrowers.
It found that only 35 per cent of respondents would consider a no-deposit loan. People said it was too expensive.
A similar number of people, 34 per cent, said they would consider a family guarantee mortgage.
Longer-term mortgages are more popular. Fifty-one per cent of respondents said they would consider a loan with a term of 35 or 40 years.
Cannex researcher Harry Senlitonga calculates repayments on a $250,000 mortgage taken over 40 years would be $180 a month lower than those for 25 years - but because of the extended term, the borrower would pay an extra $300,000 over the life of the loan.
Senlitonga says such loans can cost a lot more "but the borrower is making a lifestyle choice to get into a home. The thing to bear in mind is that these additional cost calculations are worked out over the full term of the loan but a lot of borrowers would go into these arrangements with a plan to refinance as soon as they can afford a standard loan."
The Cannex home loan database lists 14 lenders whose home loans have maximum terms of 40 years.
Senlitonga says borrowers interested in family guarantee loans need to be aware that there are several different versions.
In some cases a family member or members will provide the deposit for the borrower. In others the family member acts as guarantor and provides security for the loan. In a third type of family guarantee mortgage, the family member agrees to pay a portion of the monthly repayment.
He says borrowers should work out what arrangement would suit them best before they go shopping for a loan. The Cannex database lists 47 lenders that have home loans requiring guarantor support.
Shared equity mortgages have also been slow to take off. The first such loan was launched last year by Adelaide Bank, in a joint venture with the property group Rismark, and it is still the only product in the market.
Shared equity mortgages allow a borrower to buy a home with a smaller deposit and make smaller monthly payments in return for sharing some of the capital gain when the house is sold.
Borrowers can use the shared equity loan, Equity Finance Mortgage, to borrow up to 20 per cent of the value of the home for a term of 25 years. No repayments are made during the term and when the loan matures or is paid out the borrower must repay the principal plus 40 per cent of any capital gain on the property. If the property falls in value, the lender will bear up to 20 per cent of the capital loss.
Adelaide Bank has a package that includes a conventional home loan and an equity finance mortgage. Borrowers must take the package - they cannot have the shared equity part without taking out an Adelaide Bank mortgage as well.
Genworth says the affordability crisis may get worse. Almost a quarter of home loan borrowers have had difficulty meeting their mortgage repayments over the past year, according to the survey. Twenty-seven per cent said they could foresee problems with their home loans over the next 12 months; 4 per cent said they expected to have trouble with every payment.
As a result of those rate increases, the median monthly mortgage payment among people surveyed by Genworth went up from a range of $1000 to $1500 in 2007 to a range of between $1500 and $2000. Twenty-six per cent said they paid less than $1000 a month, 21 per cent pay between $1000 and $1500, 18 per cent pay between $1500 and $2000 and the rest pay more.
Alternative loans
* Lenders with 40-year terms: Awesome Mortgages, Bananacoast Community Credit Union, Collins Home Loans, Hunter United Credit Union, IMB, La Trobe Financial Services, Mortgage House, NSW Teachers Credit Union, Police & Nurses Credit Society, Queensland Police Credit Union, Sapphire Mortgage, Savings & Loans Credit Union, Yes Home Loans.
* Lenders whose loans have guarantor support include: AIMS Home Loans, ANZ, Arab Bank, BankSA, Commonwealth Bank, Greater Building Society, Homeloans, Homestar Finance, Mortgage Ezy, National Australia Bank, St George, Suncorp, Yes Home Loans.
* Lenders with loans with 100 per cent loan-to-valuation ratios include: Adelaide Bank, AMP Banking, Bananacoast Community Credit Union, Bank of Queensland/Citibank, Commonwealth Bank, IMB, mecu, Newcastle Permanent, Police & Nurses Credit Society, Queensland Police Credit Union, Ratebusters, Savings & Loans Credit Union, Suncorp, Westpac, Wizard Home Loans.
Borrowers Risk Averse
No interest in soft landings
By John Kavanagh | August 6 2008 | The Sydney Morning Herald & The Age (subscribe)
A survey of borrowers shows that people are becoming risk averse and wary of signing up for the very mortgage products - such as family guarantee loans, no-deposit loans and longer-term mortgages - that are designed to make it easier for them to get into a home.
Despite the weaker residential property market and falling prices, affordability has nevertheless deteriorated because of higher rental costs and higher interest rates pushing up mortgage repayments.
The latest Genworth Financial Mortgage Trends Report, based on a survey of 2000 adults, reveals that 16 per cent of Australians do not expect to ever buy a residential property. That figure has risen sharply, from 6 per cent last year and 4 per cent in 2006.
Almost half (42 per cent) said they had not been able to save the deposit for a home loan and 39 per cent said they did not think they could make the mortgage repayments.
The Genworth survey supports the findings of other affordability surveys.
The Housing Industry Association's affordability index has been falling (meaning houses are less affordable) for five years and hit a record low at the end of last year.
Furthermore, according to the Demographia International Housing Affordability Survey, the median Australian house price is 6.3 times median household income. This is a higher multiple than the US, Canada, New Zealand, Ireland and Britain. It is more than twice Demographia's "affordable" multiple of three times income and was rated "severely unaffordable".
What surprised the Genworth researchers was that products being developed by lenders to help people get into the housing market were not popular with borrowers.
It found that only 35 per cent of respondents would consider a no-deposit loan. People said it was too expensive.
A similar number of people, 34 per cent, said they would consider a family guarantee mortgage.
Longer-term mortgages are more popular. Fifty-one per cent of respondents said they would consider a loan with a term of 35 or 40 years.
Cannex researcher Harry Senlitonga calculates repayments on a $250,000 mortgage taken over 40 years would be $180 a month lower than those for 25 years - but because of the extended term, the borrower would pay an extra $300,000 over the life of the loan.
Senlitonga says such loans can cost a lot more "but the borrower is making a lifestyle choice to get into a home. The thing to bear in mind is that these additional cost calculations are worked out over the full term of the loan but a lot of borrowers would go into these arrangements with a plan to refinance as soon as they can afford a standard loan."
The Cannex home loan database lists 14 lenders whose home loans have maximum terms of 40 years.
Senlitonga says borrowers interested in family guarantee loans need to be aware that there are several different versions.
In some cases a family member or members will provide the deposit for the borrower. In others the family member acts as guarantor and provides security for the loan. In a third type of family guarantee mortgage, the family member agrees to pay a portion of the monthly repayment.
He says borrowers should work out what arrangement would suit them best before they go shopping for a loan. The Cannex database lists 47 lenders that have home loans requiring guarantor support.
Shared equity mortgages have also been slow to take off. The first such loan was launched last year by Adelaide Bank, in a joint venture with the property group Rismark, and it is still the only product in the market.
Shared equity mortgages allow a borrower to buy a home with a smaller deposit and make smaller monthly payments in return for sharing some of the capital gain when the house is sold.
Borrowers can use the shared equity loan, Equity Finance Mortgage, to borrow up to 20 per cent of the value of the home for a term of 25 years. No repayments are made during the term and when the loan matures or is paid out the borrower must repay the principal plus 40 per cent of any capital gain on the property. If the property falls in value, the lender will bear up to 20 per cent of the capital loss.
Adelaide Bank has a package that includes a conventional home loan and an equity finance mortgage. Borrowers must take the package - they cannot have the shared equity part without taking out an Adelaide Bank mortgage as well.
Genworth says the affordability crisis may get worse. Almost a quarter of home loan borrowers have had difficulty meeting their mortgage repayments over the past year, according to the survey. Twenty-seven per cent said they could foresee problems with their home loans over the next 12 months; 4 per cent said they expected to have trouble with every payment.
As a result of those rate increases, the median monthly mortgage payment among people surveyed by Genworth went up from a range of $1000 to $1500 in 2007 to a range of between $1500 and $2000. Twenty-six per cent said they paid less than $1000 a month, 21 per cent pay between $1000 and $1500, 18 per cent pay between $1500 and $2000 and the rest pay more.
Alternative loans
* Lenders with 40-year terms: Awesome Mortgages, Bananacoast Community Credit Union, Collins Home Loans, Hunter United Credit Union, IMB, La Trobe Financial Services, Mortgage House, NSW Teachers Credit Union, Police & Nurses Credit Society, Queensland Police Credit Union, Sapphire Mortgage, Savings & Loans Credit Union, Yes Home Loans.
* Lenders whose loans have guarantor support include: AIMS Home Loans, ANZ, Arab Bank, BankSA, Commonwealth Bank, Greater Building Society, Homeloans, Homestar Finance, Mortgage Ezy, National Australia Bank, St George, Suncorp, Yes Home Loans.
* Lenders with loans with 100 per cent loan-to-valuation ratios include: Adelaide Bank, AMP Banking, Bananacoast Community Credit Union, Bank of Queensland/Citibank, Commonwealth Bank, IMB, mecu, Newcastle Permanent, Police & Nurses Credit Society, Queensland Police Credit Union, Ratebusters, Savings & Loans Credit Union, Suncorp, Westpac, Wizard Home Loans.