Hard to believe

[mattnz]

I don't know that this has ever been the case.

What has always been the case though is that there is always a percentage of people who fudge their figures to get a loan that they really can't afford.

Check out this article on what NAB were promoting as affordable lending in 2009. http://www.news.com.au/money/proper...o-beat-rate-rise/story-e6frfmd0-1225791082144

Based on an income of $61,000, a deposit of $55,000, and a good savings record, NAB offered a loan of "at least $450,000".

"You could bid on a property at auction this weekend knowing that is the least we will lend you," a mortgage adviser at NAB's Surry Hills branch said.
He said the loan amount could be even greater once the buyer went through the official application process, when some "human discretion" could be applied.

So at current interest rates of around 6% (assuming a good discount), an interest only loan on $450k would equate to $27,000 per annum, well over half of their after tax income. Thats before they have paid rates, insurance, repairs or even principal on the loan. When banks were pedalling 7+ times income loans in 2009, it is little wonder that their customers are now struggling to repay them.

Lets do my exercise of what happens when interest rates correct to historical norms... at 9% interest, the interest alone takes almost all of their after tax income!!

 

[Aaron_C]

I think that loan 'pre-approval' of $450,000 was based on them renting out that property, so you can't say it would be over half their after tax income.

 

[mattnz]

I think that loan 'pre-approval' of $450,000 was based on them renting out that property, so you can't say it would be over half their after tax income.

Since when did first home buyer imply rental property investor? It is always used as a term for a person buying their first personal residence. It also doesn't mention anywhere in the article about any rental income.

 

[Aaron_C]

Since when did first home buyer imply rental property investor? It is always used as a term for a person buying their first personal residence. It also doesn't mention anywhere in the article about any rental income.

No because the lender will tell the first home buyer with that kind of deposit to just tell the lender that they are going to rent it out to aid with servicing. Happens all the time.

 

[mattnz]

No because the lender will tell the first home buyer with that kind of deposit to just tell the lender that they are going to rent it out to aid with servicing. Happens all the time.

And then we wonder how so many people struggle to service their loans. This is the Australian version of subprime liars loans.

 

[china]

Not sure what you mean by this? Do you mean discretionary spending on ourselves and our families (ie holidays, entertainment, consumer goods, etc)?

Yes, experiences to make us happy and it may not necessarily be big ticket consummable items such as E class merc. It could be a small bouquet of flowers for the woman unexpectedly. After all, money is made to be spent, not saved nor hoarded. Saving of money does not make people happy but spending does.

 

[VYBerlinaV8]

Yes, experiences to make us happy and it may not necessarily be big ticket consummable items such as E class merc. It could be a small bouquet of flowers for the woman unexpectedly. After all, money is made to be spent, not saved nor hoarded. Saving of money does not make people happy but spending does.

If It's not big ticket stuff, then surely it wouldn't be the biggest part of your income?

I always figured the idea was to buy a home, struggle for a bit, then get on top of the mortgage and eventually pay it off so you didn't have a loan (or pay rent) at all.

 

[china]

If It's not big ticket stuff, then surely it wouldn't be the biggest part of your income?

I always figured the idea was to buy a home, struggle for a bit, then get on top of the mortgage and eventually pay it off so you didn't have a loan (or pay rent) at all.

A home loan may not necessarily be the cause of unhappiness. Living in a fantastic PPOR with a loan may actually be quite satisfying for the entire family.

 

[BayView]

Based on an income of $61,000, a deposit of $55,000

"Danger Will Robinson! This sum does not compute"

Do Banks loan more than 50% of someone's income? I've never heard of it, but maybe it happens somewhere.

I can't think of anyone on $61k who would have pulled $55k deposit together (unless they lived at home and never went anywhere that young folk do) in a reasonable timeframe to think of buying a house before they get old..

 

[Graemsay]

Lending standards became very lax during the credit bubble of the noughties. The NAB example seems extreme, with an offer of 6.5 times salary, but I've heard the following:

• Northern Rock, a British building society, would lend homeowners 125% of a property's value. Funnily enough, they went bankrupt in 2008.
• Self certifyed mortgages, essentially an Aussie Low Doc loan, were popular at the same time. They were colloquially known as Liar Loans because buyers would massively inflate their claimed income, and the banks wouldn't check. The FSA (UK financial regulator) has since pretty much banned these, which is a pain for the self-employed.
• When I went over to Holland in 2006 or 2007 I asked about mortgages. The bank said that they typically lent five times salary. OK, you could write off mortgage interest against high income tax there, like negative gearing on a PPOR. But the Dutch market is now collapsing.
• And then there's the whole subprime thing in the States...

I agree that there's a lot of "aren't we poor victims", but either tax payers or other customers of the bank will pay for this in the end.

 

[china]

Lending to buy an asset only works if there is capital growth plus/minus income producing cashflow. Otherwise, disasters beset both lender and lendee.

 

[Peter Parker]

"Danger Will Robinson! This sum does not compute"

Do Banks loan more than 50% of someone's income? I've never heard of it, but maybe it happens somewhere.

I can't think of anyone on $61k who would have pulled $55k deposit together (unless they lived at home and never went anywhere that young folk do) in a reasonable timeframe to think of buying a house before they get old..

Although it could still be possible.

If a single renting privately (paying say $200 - 250pw rent for a 1br unit) spends approx $30k pa and saves $14k pa they could do it in under 4 years. That doesn't include reinvested dividends or capital growth of any shares. If they were in a share house then $20k pa saving could be achieveable.

 

[MIW]

Lending to buy an asset only works if there is capital growth plus/minus income producing cashflow. Otherwise, disasters beset both lender and lendee.

In todays time both matter. IMO though total return or IRR matters if we talk about property. I am not sure what generalization of assets you mean so I assumed real estate-since we are on property forum.

 

[MIW]

Stress is all relative. There is an old saying, " If money can fix a problem, it is not really a problem."

Long time ago in the corporate world I attended a seminar by Dr, Tickell who toyed with the idea of what is stress? Where is it? Where does it exists?
He then communicated in simple terms that stress does not exist, rather, we are constantly faced with everyday pressures. It is then how we react to those pressures that in turn creates what we called 'stress'. This was an eye opener to me.
He gave an example, where 4 people in a working environment were given the same problem to solve, a challenge, and yet the results of all were different. So we have 4 people put into the pressure cooker yet all 4 react differently (one may not solve the problem, don't care attitude, the other thrives and achieves a great solution, another one has given up and felt overwhelmed or depressed, and the fourth produced mediocre result).
Well, in his opinion it is our attitude and how we react to the problem that produces different results.
So to members on this forum, next time you are stressing out, try to work on your positive attitude, or as I like to say, concentrate of finding the solution rather than concentrating on a problem. This concept helped me in some situations in life, perhaps it may help you too.

 

[china]

Long time ago in the corporate world I attended a seminar by Dr, Tickell who toyed with the idea of what is stress? Where is it? Where does it exists?
He then communicated in simple terms that stress does not exist, rather, we are constantly faced with everyday pressures. It is then how we react to those pressures that in turn creates what we called 'stress'. This was an eye opener to me.
He gave an example, where 4 people in a working environment were given the same problem to solve, a challenge, and yet the results of all were different. So we have 4 people put into the pressure cooker yet all 4 react differently (one may not solve the problem, don't care attitude, the other thrives and achieves a great solution, another one has given up and felt overwhelmed or depressed, and the fourth produced mediocre result).
Well, in his opinion it is our attitude and how we react to the problem that produces different results.
So to members on this forum, next time you are stressing out, try to work on your positive attitude, or as I like to say, concentrate of finding the solution rather than concentrating on a problem. This concept helped me in some situations in life, perhaps it may help you too.

Thats nicely put. Solutions are always better than problems.

 

[china]

Now the reverse situation, Aussies are actually doing very well in mortgage payments.

http://www.news.com.au/realestate/n...-with-repayments/story-fncq3gat-1226481259809

 

[weg]

Now the reverse situation, Aussies are actually doing very well in mortgage payments.

http://www.news.com.au/realestate/n...-with-repayments/story-fncq3gat-1226481259809

Obviously there are the minority that get into strife and others that are very conservative and prepare for the unexpected by paying extra on their mortgage. Again nothing new.

All mortgaged people have to do is pay a little extra every payment and/or pay fortnightly instead of per calender month to get themselves years ahead in repayments - very common practice.

Many others, and i knew a few (2 were FHB couples) bought cheap homes or units and used one or more incomes to pay the mortgage off very quickly.

Clearly different people have different ideas of how they purchase property.

Both articles focus on 2 very different groups.

 

[buzzlightyear]

Now the reverse situation, Aussies are actually doing very well in mortgage payments.

http://www.news.com.au/realestate/n...-with-repayments/story-fncq3gat-1226481259809

But that headline doesn't galvanise, agitate and call to arms, the acolytes spruiking the 'new' orthodoxy of overpriced, mortgage stressed property owners.