Mortgage rejections double as interest-only reset bites

Via The Advisor:

One Sydney-based BDM and former mortgage broker says that one in three clients are unable to obtain a loan as a result of credit tightening policies implemented by lenders.

Speaking to The Adviser, former eChoice broker and Mortgage Pros North Strathfield BDM Hank Hong said that an increasing number of his clients’ loan applications are being rejected.

“It’s [credit tightening] affected servicing and how much you can actually lend based on incomes,” Mr Hong said.

“Certain offers that they put into place, higher living expenses, certain buffer rates, have reduced what [clients] can borrow.

“In the last 12 months, I would say one in three deals that come into my hands weren’t able to [get] service[d] and weren’t able to get the funds they were after.

“Two to three years ago, it was maybe one in five or one in six clients.”

The BDM added that borrowers, who have previously obtained unsuitable loans, are now struggling to manage their mortgage repayments.

“Existing clients are coming back because they’re not being able to service the loans that they were initially approved for because of the tightening of the service calculations,” the broker continued.

“Going back two years ago, people were getting million-dollar loans — $1 million to $1.5 million — with just $80,000 incomes or combined incomes of $150,000.

“They were on fixed rates of 3.99 per cent on interest-only loans, which they could afford, but when these fixed rates come off and the interest-only comes off, those clients are going to struggle to make the P&I repayments because they haven’t adapted to a lifestyle of paying principal and interest.”

Westpac had the answer at Mortgage Broker but no more:

Westpac has dropped its plan to offer “instant mortgages” as banks’ lending practices come under increased scrutiny.

The Australian Financial Reviewreported on 28 January that Westpac confirmed a plan to offer instant mortgages had been abandoned. The project had been active until as recently as late 2017.

The plan would have allowed Westpac to offer clients a nearly instant approval, or provisional approval.

Despite dropping the project, Westpac will continue to streamline its process for mortgage application and improve its turnaround times for housing borrowers, said the report.

The bank will go ahead with plans to extend innovations for its business clients and residential mortgage customers as it works to bolster its mortgage capabilities and protect its market share. These innovations include e-document signing and other technology-based solutions.

Bummer!

David Llewellyn-Smith
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Comments

  1. Probably 1 in 3 can’t get one from the first bank they try … after 2-3 attempts it’s probably 0-3

    • I dunno – the broker’s job is to try all the banks and lenders, and he claims that after that, one in three are still missing out.

  2. “Going back two years ago, people were getting million-dollar loans — $1 million to $1.5 million — with just $80,000 incomes or combined incomes of $150,000.”

    What a life that must be.

    • The only way idiots would be taking on such mortgages with $80k per annum incomes, is because they don’t do any of the calculations themselves and instead let the broker do it all for them and determine their maximum borrowing capacity. Which means they are either all thick as mud or subscribed to the idea that prices only go up and continue to rise forever and therefore someone will pay them more for the house later (which will make them wealthy).

      It’s the only way I can describe the lack of F&^%’s being given at Auction each time they place another $50k on the bonfire through successive bidding..

      • darklydrawlMEMBER

        That is exactly what happens. They really believe that all you need to do is get in the market and let the capital gains to the rest. To be fair, it has been a pretty good ride for 25 years in this country – many folks believe that it cannot / will not end. Pain and tears for those left holding the ‘hot potato’….

      • The only way idiots would be taking on such mortgages with $80k per annum incomes, is because they don’t do any of the calculations themselves and instead let the broker do it all for them and determine their maximum borrowing capacity.

        That’s exactly what they do. Tons of people just assume “this must be safe/OK otherwise the banks wouldn’t let me do it”. It’s why people react with such disbelief and start casting around for someone to blame if things go pear shaped. Remember those poor buggers on Four Corners who invested in WA at the peak of the boom? The confusion on their faces… they genuinely couldn’t believe what had happened to them. It was like they had no idea such an outcome was even possible.

      • Problem is, these are the same idiots who have been outbidding me at Auction lol… I just hope some of those places appear back on the market at Fire sale prices at some point. 🙂

      • Lenny Hayes for PMMEMBER

        Our Big 4 home-loan manager recently relayed a story about a couple who had gone into the bank at the end of their Interest Only period and could not for the life of them understand how they hadn’t reduced their mortgage in that time, and why their interest repayments were going up.

        It is either pig ignorance (although pigs are quite intelligent) or wilful stupidity.

      • Interesting, thing is I’d never heard of interest only loans until I came back to Australia (for home loans that is) and when I heard about it I thought the idea was nuts and still do.

        So if you operate under the idea that a loan amount would go down over time and a mortgage broker stitched them up with a good deal (but neglected to mention it was interest only) I can see how it’s happened…

      • Interesting, thing is I’d never heard of interest only loans until I came back to Australia (for home loans that is) and when I heard about it I thought the idea was nuts and still do.

        I think you’ll find they’re driven primarily by the differing (so I’ve been told) tax treatment of an IO+Offset mortgage vs a PI+Redraw mortgage.

  3. “they haven’t adapted to a lifestyle of paying principal and interest” – – lifestyle change, thats one way of defining it

  4. Related: tax treatment of interest on mortgages, US based so tax benefit applies to the owner occupier, but switch findings to Australia and the negative gearing phenomenon.

    “This paper studies the impact of the mortgage interest tax deduction on equilibrium house prices, rents, homeownership, and welfare. We build a dynamic model of the housing market that features a realistic progressive tax system in which owner-occupied housing services are tax-exempt and mortgage interest payments are tax-deductible. We simulate the effect of tax reform on the housing market. Eliminating the mortgage interest deduction causes house prices to decline, increases homeownership, decreases mortgage debt, and improves welfare. Our findings challenge the widely held view that repealing the preferential tax treatment of mortgages would depress homeownership.”

    http://marginalrevolution.com/marginalrevolution/2018/01/eliminating-mortgage-tax-deduction-boost-homeownership.html

  5. There’s a weird listed company buying up some IP law firms and many of the top shareholdings are opaque. Now let me quests who they are: The queen, humpy bear …