Mortgage deposits triple as credit crunch hits

Via the AFR:

A typical deposit on a $1 million residential property has nearly tripled from about $50,000 to $150,000 as borrowers commit to tougher standards demanded by regulators, increasing pressure on the Bank of Mum and Dad or unsecured loans to make up shortfalls, lending analysis shows.

Deposits required for nearly eight-out-of-10 loans have increased from a minimum of about 5 per cent of the property price to about 15 per cent of the price for investors and 12 per cent for owner-occupiers, it shows.

…Sally Tindell from RateCity said: “Home buyers no longer need one or two incomes to get their first property. They now need three, including their mum and dad.

It’s not easy to sort the propaganda from the real with these apocryphal reports. Mortgage finance suggests lending standards are tightening meaningfully:

But the who and how much is up for grabs.

Comments

  1. harry petropoulosMEMBER

    I wish they adopted these policies from the beginning with the pleasant outcome that our debts would have been much lower and consumers would have been sensible about their own financial outcomes!!!

  2. “A typical deposit on a $1 million residential property has nearly tripled from about $50,000 to $150,000”

    So a typical mortgage deposit was only 5% ???

    What the f*** are/were APRA up to – that is just INSANE.

    I think I’ll attend this luncheon and ask Wayne…..

    Australian Business Economists are pleased to present a lunchtime briefing and discussion with

    Mr Wayne Byres
    Chairman
    Australian Prudential Regulation Authority (APRA)

    Developments in housing markets

    Wednesday 11 July 2018

    Details
    Time: 12:30 pm – 2:00
    Venue: Ivy Ballroom, 320 George Street, Sydney
    Cost: $175 members, $205 non-members, $1950 tables of ten guests
    Lunch included two course and beverages.

    Register online here. or with form overleaf.
    Enquiries: [email protected] or call 0419 256 339

    Mr Wayne Byres
    BEc (Hons), MAppFin, SF Fin
    Chairman of the Australian Prudential Regulation Authority (APRA)

    Mr Byres was appointed as a Member and Chairman of APRA from 1 July 2014 for a five-year term. Mr Byres’ early career was in the Reserve Bank of Australia (RBA), which he joined in 1984. He transferred to APRA on its establishment in 1998 and held a number of senior executive positions in APRA’s policy divisions and supervisory divisions. In 2011, he was appointed to the role of Secretary General of the Basel Committee on Banking Supervision (BCBS), based at the Bank for International Settlements in Basel, Switzerland.

    Mr Byres is APRA’s representative on the Payments System Board, the Council of Financial Regulators, the Trans-Tasman Council on Banking Supervision, the Basel Committee and its oversight body, the Governors and Heads of Supervision.

    Registration form >>>

    Australian Business Economists (ABE) aims to encourage greater understanding of economic issues by fostering debate in the financial market, business and commercial sector and across the community in general. Visit us at: abe.org.au

    Australian Business Economists
    Briefing with Mr Wayne Byres Wednesday 11 July 2018

    Please complete details below and email to [email protected] or
    post with your payment to ABE, PO Box 7267, Bondi Beach, 2026.

    • bbagodicsGhost

      Are they going to have carnival dunk tank where you can throw ball and get wayne byres to fall into a tank of HIV contaminated syringes ?

      If so, I’m in. Incompetent, corrupt and criminally inept ass-clown !

      • How much do they have to their name now prices have fallen almost 5% (and typically more in above median houses apparently)?

      • Nope, because stamp duty and other costs would add another $45,000+. So, basically, 100k.

        I was offered one of those mortgages. I turned it down. What I *couldn’t* get was a mortgage on a $350K studio. “Too small” the bank said. Given the difference in risk of default between the two, I would have thought that the small studio was a great bet for the bank, because they’d for sure get the mortgage payments from me. Unless, of course, they were actually BETTING ON customers defaulting and prices always rising, in which case, the bigger the property they could get a sucker to sign for, the more profit they’d eventually make when they repossessed the house.

      • The problem with the studio is that it is likely to suffer from a greater % loss in value than a larger property, especially if a whole lot more studio apartments in the same area appear on the market at the same time due to mortgage stress. The likelihood of default might be less, but the ability to sell without the bank incurring a loss is also lower, and that is the more important consideration.

      • Jumping jack flash

        Yes 5%!

        5% was what I had, and what I was told was the minimum deposit required from any of the brokers I visited when I was looking around about 6 or so years ago. I needed LMI, but that was conveniently rolled up into the mortgage so I never really saw it.
        Luckily I couldn’t see any value so I didn’t plunge myself into the debt chasm. Phew.

        After I’d looked at a few battle-axed fibro shacks in the smelly part of town for 250K and passed on them, the REAs I walked around with called me up and said “mate, 250K is the bottom of the pile, you’ll only get smelly fibro shacks with no backyards for that price. You need upwards of 350K to get anything decent”.

        Mind you, this was in the middle of bumf*ck NSW, where space is plentiful and prices are supposedly cheap, and there is only one major employer (who I work for), or farming, or government services, to earn anything that remotely looks like average national income around here. Most of the people around here are paid by the DSP.

        So I said, “mate, 250K is the utter maximum amount of debt I would get myself into considering my income, besides my deposit is pretty sh*t, and I know it.”

        And then they said “Oh don’t worry about that, I know a mortgage broker who can fix that, let me know if you’d like me to set up a meeting”.

        I hung up and they never called back.

        And then some years later I think I met this particular mortgage broker when my wife made friends with his wife, and that guy worked out of the back of his car, and was as shady as an umbrella factory.

        So when I say, “RC into mortgage brokers now!”, I have this particular guy in mind.
        Good luck finding him if he ever wanted to disappear…

      • Actually there are lenders that will lend a base loan of 95%, plus LMI, which essentially takes it to close to 100%.

      • @Hobbit

        And the guarantor had better have at least 6 kidneys, 3-4 hearts and roughly about 5 knee-caps in case the bank comes a-knocking.

    • SoMPLSBoyMEMBER

      5% down payment, eh?
      Well, that’s reassuring!
      Would like to see the graph for each Big 4 bank where collective underlying security( resi property) value falls below loan value. If it’s a threatening problem for the customer, its a problem for the lenders, too.
      # judgement day

    • TailorTrashMEMBER

      So does Wayne get a honorarium for this little talk …….and is this just a nice way for this private organisation to use a puplic official as a nice little earner ?
      Still, a ballroom full of $1950 tables has to be good for GDP and employ a few 457 waiters no doubt .

    • Even StevenMEMBER

      5% deposit is presumably for FHBs. FHBs are a small proportion of banks’ existing loan books.
      5% sounds like it’s the minimum. So we are now talking about a proportion, of some proportion, of banks’ existing loan books.
      I would expect (hope) that banks have to hold more capital for high LVR loans.

      Not saying it’s not bad, but maybe not as bad as people are suggesting.

      • The banks do have to hold more capital for a high LVR loan. Basically a 95% LVR loan would require twice as much as a 60% LVR loan. However, for a 95% LVR loan the bank would force you to buy Lenders Mortgage Insurance for them, reducing the capital they need to hold by around 30%. But remember we are talking about risk weightings. For a $100k loan at 95% LVR, with LMI, the bank needs to hold around $5k. The mortgage insurer covers the rest of the potential loss hence the lower risk weighting. But the kicker in the story? Once the mortgage insurer pays out to the bank for any losses, they come after you for it. This is the part of the contract that most people don’t read (or choose to ignore).

        In a housing crash, the banks will be reasonably well protected in theory. Until the mortgage insurers realise they don’t have enough money to pay out because they are so thinly capitalised, and because a significant part of their asset base is invested in stocks and bonds that are declining by the second because of a housing crash, and because the people they are chasing simply go bankrupt. LMI is where the trouble will start if it genuinely hits the fan. Houses n Holes has written on this site about it before.

  3. truthisfashionable

    Wife and I went for a sticky beak at the Leppertown Homeworld the other weekend.

    The sales people don’t seem to care about any alleged tightening of lending because most of the offers they have are just 5% upfront and the rest at completion.

    Will it be a time bomb if people suddenly find the bank needs them to stump up the remaining 15% to have an LVR of 80? Or do the builders win when they keep your 5% and now have a finished house to resell?

  4. Headline on AFR story:

    Borrowers face two-fold increase in property deposits as lenders tighten terms

    Two-fold? From $50,000 to $150,000 is three-fold, or triple.

  5. rentsailorMEMBER

    Seriously. How could you sleep at night with only being able to front 5% for a million dollar mortgage. WtF!

    What happens when the DINKs have kids and one partner is out of the workforce.

    I seriously am amazed there are loans still being given out less than 10%

    Don’t get me wrong.. the longer this goes on the bigger the pop when SHTF..

    As an above poster said. Watch judgement day when those lenders decide LVR is 80% and OO’s and IPs have the front the 15% good luck chuck!

    Pass the popcorn.

  6. “How could you sleep at night?”
    Because everyone has been brainwashed that all that matters is serviceability – i.e. they don’t care if they are borrowing $700k or $1mil. All they calculate is repayments. Everyone has accepted that paying off principal is irrelevant, hang on to the asset long enough and you will have growing equity and be on your way to financial freedom. And there is some extreme financial decision making as a result of this. People truly believe their homes will double in value in 10 years time, and a small correction of 10-15% is not going to change this way of thinking.

    • rentsailorMEMBER

      So true.

      Fueled by Oz having the worst or second worst rent stress in the western world. As per the MB article few weeks back.

      People would rather have a million dollar debt box than have some IP owner landlord, who can turf you and kids out with 3 weeks notice.

      Straya!

    • “People truly believe their homes will double in value in 10 years time, and a small correction of 10-15% is not going to change this way of thinking.” Yup!

      In addition to ‘the govmint will save us (if house prices fall too far)’ … Over the last decade or so they have been correct…

    • You only need a 5% deposit because with Chinese buying pay $200-$300k over reserve all you need to do is wait 12 months and when your neighbours sells their house which has 1 less bedroom and 100 sqm less of land for $300k above what you paid you can get it revalued and boom equity mate and your Loan to Value ratio is all good.

      • PantoneMEMBER

        I know! 37m in cash, 32m market capitalisation. IQE royalties in the near future and now no cash burn from GLE. On top of that it looks like the uranium market could go into deficit this year!

      • Super Phoenix

        I opened my floodgate and substantially increased my position in SLX over the last 2 days.

        When SLX was first floated back in 1998, 12 years after the worst nuclear disaster in history, and before any partnership deals were in place, EV of SLX was $61m.

        Fast forward 20 years to 2018, 7 years after the second worst nuclear disaster in history, and with a solid partnership deal with IQE in place, EV of SLX is $32m.

        And this is without accounting for the fall in the value of AUD over the last 20 years. No matter how you look / slice / analyze it, it is no brainier.

      • PantoneMEMBER

        I’m glad MG dropped the option. Now if there is a recovery in U then anyone who wants the technology will have to offer decent terms for it. SLX is now in a stronger position I think. Now if he can drop his pay, that would be really appreciated.

      • Super Phoenix

        I think MG is doing well given the circumstances. The IQE deal was great – I don’t know how he managed to pull it off but he somehow did. The total lack of market reaction to the IQE deal has been mystifying.

        With the GLE obligations gone, I think MG can now call Global X and offer to buy their 14.4m shares for AUD$2.8m. He could request a trading halt to crystallize the price. From the way the volumes have been falling since the announcement, I don’t think it will go much lower.

  7. “Home buyers no longer need one or two incomes to get their first property. They now need three, including their mum and dad.”

    That is such an insane statement. How can we possibly have a society go from requiring one income to 3+ incomes to buy a home in the space of a generation? Not going to end well.

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