Borrowers Risk Averse

Found this interesting article

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.
 
From a buyer's point of view (which I am) this is all good news. It means that prices will soften as the buyers disappear.

More bargains to choose from, and less competition from other buyers.

I've never followed the crowd anyway - that's why I'm here I guess.
 
Mary, Mary, quite contrary,
How does your garden grow?
With renters for life, and high yield deals,
And pretty IPs all in a row.
 
Vultures & 4%

From a buyer's point of view (which I am) this is all good news. It means that prices will soften as the buyers disappear.

More bargains to choose from, and less competition from other buyers.

I've never followed the crowd anyway - that's why I'm here I guess.

I have been in a number of presentations this week, by creative agencies pitching for our work, and one of them had mentioned some research into how consumers respond to recessions or sever economic downturns, and categorised them accordingly, each with their own characteristics about their reactions. One of the categories was that of a Vulture. They described this as people who knew it was at these times, that opportunities were present to make significant wealth, with properties or shares being the key areas of choice. They accounted for only 4% of the total population.
 
I guess this is validation of the saying that only 5% of the population control 95% of the wealth - or is that 10% and 90%?
 
One of the categories was that of a Vulture. They described this as people who knew it was at these times, that opportunities were present to make significant wealth, with properties or shares being the key areas of choice.

Vulture or specufestor...... hmmmmm, not sure which one I prefer :).

I just see if as taking advantage of whatever situation presents itself. Of course the other 96% have access to the same opportunities, but make different choices.
 
I know a couple whose combined income is 300k+ p.a.

Have I tried to talk to them about investing some of it? Yes. Did they listen? No. It all goes on overseas holidays, sport cars and restaurants.

*shrug and move on*
 
I wander how long it takes for consumer confidence to improve once the interest rates start to come down. The reserve banks might lower the IR this year.


A question for the older ones here. The investers who have been through at least two - three cycles and have kept an eye closely on the Australian economy and have an understanding of how it works and its effect on the property market


How long do you think it could be once the IR start heading down do people and also fhb start to think of buying a property because they feel things are less risky and more affordable. I'm thinking perhaps 6 months or so. What do you guys think? I know there is know crystal ball, but i'm curious if you can see any patterns occurring. They say History always repeats itself.



:)
 
One of the categories was that of a Vulture. They described this as people who knew it was at these times, that opportunities were present to make significant wealth, with properties or shares being the key areas of choice. They accounted for only 4% of the total population.

"Vulture" makes it sound really bad...

I see it as having good business sense, that is, making the most of the situation that is dealt to us.
If you wait until share prices go down before you buy, are you considered a vulture then?

Boods
 
I wander how long it takes for consumer confidence to improve once the interest rates start to come down. The reserve banks might lower the IR this year.


A question for the older ones here. The investers who have been through at least two - three cycles and have kept an eye closely on the Australian economy and have an understanding of how it works and its effect on the property market


How long do you think it could be once the IR start heading down do people and also fhb start to think of buying a property because they feel things are less risky and more affordable. I'm thinking perhaps 6 months or so. What do you guys think? I know there is know crystal ball, but i'm curious if you can see any patterns occurring. They say History always repeats itself.



:)

Kim, you can't pick the bottom of the cycle. From what I can gather fhb are back in the market in Perth buying property (partly due to the shared equity scheme). This will increase competition and have upward pressures on the market at the price levels you are looking at (even though the Perth median is reducing).
 
I know a couple whose combined income is 300k+ p.a.
Have I tried to talk to them about investing some of it? Yes. Did they listen? No. It all goes on overseas holidays, sport cars and restaurants.
*shrug and move on*

Be happy, someone has to pay us the rent :)

Vulture?? nah, I prefer George Soros's saying: "You have to know when to be a PIG" lol
 
From a buyer's point of view (which I am) this is all good news. It means that prices will soften as the buyers disappear.

More bargains to choose from, and less competition from other buyers.

yey and more time to save up, when no-one is buying and the market is staying the same or falling in price. i'm in an excellent position being able to sace $2,500 a fortnight whilst in no hurry to buy.

found another article

Homebuyers sit on the market sidelines

Also in Perth atm investors are staying away from Perth because of the poor rental returns.

The ip price range i'll be buying into is the entry level properties, the props that fhbs buy to get into the market. No competition, very very few buyers in Perth, i could still pick up a real bargain in 6 months or maybe i have a bit longer to save the way the economy is going, im not sure.
 
Kim, you can't pick the bottom of the cycle. From what I can gather fhb are back in the market in Perth buying property (partly due to the shared equity scheme). This will increase competition and have upward pressures on the market at the price levels you are looking at (even though the Perth median is reducing).

yeah in last weekends saturday paper they said some are getting into the market but that consumer confidence was still low and there are still quite a few waiting untill its more affordable. There is a lot of uncertainty still.

Perhaps in 6 months time would be a good time to buy rather than next year. I'll keep saving and re-assess the situation at the end of the year. I'll see how the enonomy is going and how the market is performing.

Also not every fhb is interested in the shared equity deal. Lots of fhb really struggle to save up the deposit in the first place and if they get a 95% or higher loan they realise with the way the economy is that there wont be much growth in the coming months, maybe even negative growth. Its risky.

Unemploment is higher

Renting is still way cheaper than having a mortgage

I also think fhb's have been scared by what has occurred with people defaulting on their loans and the whole sub-prime crisis that occurred in the US.

There could even be a recession

I just dont see a rush of fhb's getting into the market. I think lots are waiting to see how the economy goes and also if the banks cut their IR's in line with the RB.
 
I have been in a number of presentations this week, by creative agencies pitching for our work, and one of them had mentioned some research into how consumers respond to recessions or sever economic downturns, and categorised them accordingly, each with their own characteristics about their reactions. One of the categories was that of a Vulture. They described this as people who knew it was at these times, that opportunities were present to make significant wealth, with properties or shares being the key areas of choice. They accounted for only 4% of the total population.

yep most people are very wary!!
 
Procrastination. Yes it's good to do your research but there comes a time to take action. If you wait until the time you read in the newspaper that everyone is positive and buying again you would have missed the opportunities that were available when the market was struggling with a lack of confidence.
 
Procrastination. Yes it's good to do your research but there comes a time to take action. If you wait until the time you read in the newspaper that everyone is positive and buying again you would have missed the opportunities that were available when the market was struggling with a lack of confidence.

i havent saved enough yet!! lol


You have to be able to afford it. That is the most important thing for me with investing. I'm not in that position atm.


I guess im more conservative than some people on here, but i feel in my situation i want to have a decent sized deposit and also have a minimum of $10,000 in savings as a buffer before purchasing an ip. Each to their own. We are all different.


I'm getting there. Half way there. As soon as my hand has recouperated I will be looking to get a 2nd job to save more.

:)
 
"Vulture" makes it sound really bad...

I see it as having good business sense, that is, making the most of the situation that is dealt to us.
If you wait until share prices go down before you buy, are you considered a vulture then?

Boods

They can call me whatever they like.

If it wasn't human nature for people to try and buy a bargain, then the DFO's and E-Bay wouldn't exist.

Sticks and stones...

These sorts of comments are from people who are anti-rich in their core.

They are the sort of person who says: "I'll never be rich, you don't need money to be happy" and so on.

I've been poor and unhappy, poor and happy, and now much more comfortable and happy, but occasionally unhappy.

And I know which one I prefer.
 
I haven't been through what you describe, but I reckon just the talk of IR's coming down is enough to help peoples sentiment. Last weekend I had my best sales in many months (plants), and the weeks just prior were my worst ever.

I wander how long it takes for consumer confidence to improve once the interest rates start to come down. The reserve banks might lower the IR this year.


A question for the older ones here. The investers who have been through at least two - three cycles and have kept an eye closely on the Australian economy and have an understanding of how it works and its effect on the property market


How long do you think it could be once the IR start heading down do people and also fhb start to think of buying a property because they feel things are less risky and more affordable. I'm thinking perhaps 6 months or so. What do you guys think? I know there is know crystal ball, but i'm curious if you can see any patterns occurring. They say History always repeats itself.



:)
 
Back
Top