Banks tighten screws on mortgage borrowers

The Australian Bankers Association (ABA) has released figures showing that 429,000 mortgages have so far been deferred – one in every 14 mortgages – totaling $153.5 billion:

The Australian Banking Association today released new figures which showed 429,000 mortgages had been deferred totalling $153.5 billion. The figures take the total number of loans deferred to 703,000, worth a value of $211 billion…

“Since this crisis started banks have deferred the mortgage repayments of 429,000 Australian families or a staggering one in fourteen of all home loans.

Meanwhile, a record number of Australians are refinancing mortgages to cash in on record low mortgage rates, according to Finder:

More than 26,000 loans valued around $11.5 billion were refinanced during March, the highest number since December and 8 per cent more than last month…

“Over recent years, the big four have been prepared to allow smaller lenders to lead rates down, but this has not been the case for the last couple of months, with the big guys taking the lead,” Mr Mickenbecker said…

“While the value of houses may well drop in the next year, the mortgages on them will not,” Mr Cooke said…

Chris Foster-Ramsay, a mortgage broker with Foster Ramsay Finance, said many households were attempting to improve their cash flow by using generous cash-backs from refinance deals to pay break costs on existing fixed rates then lock into lower rates for two or three years.

For example, ANZ is offering a $4000 cash-back for refinancing home loans of $250,000 or more.

However, in an ominous sign for Australia’s housing market, several lenders have begun tightening financial requirements on mortgages:

From Sunday, Westpac Group will lower the amount of non-base income it uses to assess a loan from 80 per cent to 60 per cent of the total. That income includes bonuses, overtime, commission, interest and dividend and director’s fees, other than from the borrower’s own company.

It will also increase the deposit the self-employed need for a loan to 20 per cent of the property’s lender-assessed value, an increase from between 5 per cent and 10 per cent.

Citi has suspended new bank loan applications reliant on income from overseas…

Lenders say the new conditions are in response to the impact of COVID-19 restrictions on self-employed workers.

Categories facing tougher terms are likely to be widened over coming weeks to include those being hit by job losses, such as construction.

Given easy access to credit was the fuel that drove Australian property prices into the stratosphere, tighter access to credit would obviously place downward pressure on property values.

Leith van Onselen
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Comments

  1. Extend and pretend existing borrowers.

    Tap the brakes lightly on new borrowers. Market still largely balanced as the old borrowers on holidays, etc refrain from selling.

    Wait until government squirms and pleads for more generous lending for new borrowers or provides the right sorts of guarantees/incentives.

    Now to social pressure and release the brakes. Everyone is happy.

    • Unfortunately I have to agree. Extend and pretend, I’m sure they’ll continue it past 6 months to keep the whole game afloat.

      Only a financial debt crisis affecting markets/ banks will change this outcome. And even then it’ll just mean the RBA starts buying houses with printed money en masse. A sad state of affairs, the future is well and truly farked for the young.

    • Don’t disagree, however this is the V shaped ‘orderly’ recovery version with asset prices already baked in through the current market position, supported by govt. stimulus / legislation and bank credit support. U, L (and what ever other base and downside letter you want to use) starts with asset price deflation 10 – 20% from dolehider and loanhider sunset date.

    • Jumping jack flash

      They will still need to be a bit careful.
      The system for infinite debt depends on new debt coming in and reducing the risk on the next most recent debt still at 95% LVR.

      95% LVR is fairly risky, but as more debt is added over time, and prices are pushed higher as a result (creating capital gains), the 95 will come down to a much more robust 85 or 75%.

      If they restrict the new debt then those most recent purchases will remain riskier for longer, and that’s not necessarily a good thing, especially in this environment.

      The main problem is that the debt hasn’t been expanding fast enough for about 7 years. The way to fix that problem is not to further restrict debt growth!
      As I’ve said before, this is not the time for the banks to get all cagey with their debt. This is the time for all the banks to flood the market with their debt, get it growing again, and fix all the problems.

      But as someone said somewhere else in this thread, perhaps this is a power-play by the banks to see how long they need to withhold debt before the government cracks and starts paying everyone a UBI or putting in some more debt subsidies…

      I suppose we’ll see.

  2. Guys
    3/4 million home loans making no payments
    A huge portion of commercial business leases repayments deferred
    6 million on job keeper
    October this is going to be an atom bomb to the economy
    Most commercial tenants not paying rent, I’d nearly go as far as saying nearly 100% not paying the full amount
    A huge portion of resi renters deferring in full leaving the tenancy or reducing their monthly rent
    Credit @ 20% less borrowing capacity and getting tighter
    Reduce LVR coming and black listed resi towers
    Unemployment 25% at least at Xmas if not 30% or more
    Owner occ land tax
    Huge surge in supply properties finishing construction, sharing, moving home, less immigration
    Airbnb on the market (my friend had an Airbnb and he told me they charge 30% wow, Airbnb isn’t even viable anymore)
    Banks WILL have to increase their interest margin 2.5/3% will be 4 to 5% next year
    CJOYE and co are probably doing their forecasts off inside info FHOG QE etc but it won’t work this time
    We are now in a multi year decline in both residential and commercial property
    Both resi and commercial property are going to continue to fall,

    Can someone pls tell me the arguments for prices to rise from levels Q4 19, Q1 20?
    Genuine I’m interested

    PS My landlord reduced my rent by 20% but said he wanted (Chinese owner) inner east Melb wanted only a 6 month lease until Dec 17= in case he wanted to sell or increase rent – I quietly said THANK YOU. Dec 17 I’ll offer 10 to 20% less again, what are they going to do kick me out on Dec 17, Great he won’t get a tenant until March if lucky, I’ll get a place down the coast for 2 months Jan Feb…..

    This is going to be a disaster of BIBLICAL proportions, I believe Melb will have the greatest property crash of any place going back to any time in history

    I’m going to Burleigh Heads in 2 years any thoughts ????

    • Yes. Corelogic dailies – Melbourne seems to have diverged from Sydney, very interesting. I’m not checking every day but Melb seems to be heading predominantly down over the last week or two and Sydney still rising or at least flat.

      Look at the quarterly change – a noticeable difference already.

      https://www.corelogic.com.au/research/daily-indices

      • Arthur Schopenhauer

        There may only be room for one speculator city after the Great Contraction.

        • I’m looking forward to Melbournites beating their chests and boasting “we do everything better than Sydney! Call that a downturn!? We have the BEST and BIGGEST housing crashes! We have MORE homeless property spruikers squatting in MORE dilapidated cardboard boxes! We lost MORE WEALTH in a year than you’ve had in a lifetime! And our bridges might be smaller but there are MORE people living under them!

    • A dollar A day

      Bcnich your list of reasons is long and sounds compelling but the hard numbers in respect of new credit creation and amount of new credit directed towards home loans will dictate the direction of the housing market. Unless and until that number crashes (turns negative) chances of a significant correction are low. And fortunately for housing speculators the boffins at the rba are unlikely to allow a sharp and sustained period of credit contraction as the system depends on a certain level of credit growth to keep things humming along.

    • hit me up when you’re in Burleigh we’ll have a surf/cycle/coffee
      PS: Commune Espresso @ Burleigh, you’re welcome

    • Diogenes the CynicMEMBER

      I like your rental plan – assuming you have minimal luggage and gear. If you don’t, sell most of it or get a storage shed.
      Your property view is very bearish but not beyond possibility I lived through the HK property market falling 50-70% in 12 months. No one predicted it and the speed of its demise was staggering I used to walk past property agencies who were forever taking down signs and changing the prices. It’s like the Ernest Hemingway line about going broke – “slowly, slowly and then all at once.” A lot of people will HODL though so the bust will be epic if it really gets going. My own view is more like a 20% property fall which means our banks need “assistance” from the Government.

      • I’d like to know more. Apparently, everyone pretty much held and kept paying their mortgages until the market recovered? Wonder if the legal system (no jingle mail?) had some impact on people holding L/T? Any more details?

      • is this another diogenes or is this same person who is friends with a certain rocket scientist short seller? and assuming the value of aussie housing stock is 7 trillion and we have had probably a 10% fall nationwide already you would have to think we are gonna need a bigger printer already?

    • darklydrawlMEMBER

      Yes, Agree with most of that Bcnich. Hell, even I was shocked at the Domain figures this week and I am bearish. The headline clearance rate looks ‘ok’ at 53%, but OMG – check out the volumes. These figures are based on 36 sales. No, that is not a typo. 36 houses sold for all of Melbourne.

      https://www.domain.com.au/auction-results/melbourne/

      Clearance rate* 53%
      Total auctions 82
      Confirmed results 49
      Sold 36
      Withdrawn 19
      Passed in 13
      Total sales $22,035,638
      Median $775,000

    • Real estate prices can rise in perpetuity and without any regard to wages growth or rents which I’m sure most people here simply cannot understand. For a start you simply need to forget about Aussie FHBs on Aussie wages – they are virtually irrelevant to prices. So much weight is put on assumptions around that category and that’s why so many economists fail with their RE crash predictions.

      The main factor is to have a constant supply of new buyers that will pay new ATH prices. It acts like a very powerful domino effect on the whole market and beyond to other regions and the entire country. The market is almost entirely “already owners”.

      Those new buyers were coming from China. Many probably are still in the country with access to funds. But, since the borders are now shut, this may be a problem.. but it will take months to materialise, especially with all the mortgage hider, unemployed hider, etc. continuing.

      I noticed Kiyosaki is in Australia and saying it’s the best country in the world for RE. Maybe the Chinese slack of “new buyers” will be picked up by yanks.

      • this comment is fundamentally wrong. there is an .82 r value with aussie house prices and credit……….marginal price setters are almost irrelevant. it is not “different here”. this is a text book credit driven bubble.

        • I think you might need to learn to understand that the marginal buyer’s access to credit and larger amounts can, in reality, be fully replaced with cash from a foreigner buyer and the marginal price can be, and is set in reality, by that cash buyer (generally from China). In a market of almost entirely “already owners” the marginal price is king… aggregate credit is simply a side effect not a cause.

          Credit availability definitely supports prices but quoting it’s correlation to prices and implying that is the only and be all reason for price growth is actually fundamentally wrong. I would actually love to see prices devastated. But unfortunately that is unlikely due to the foreign bid. There are many factors at play (including a seemingly immovable psychology and belief system regarding RE in Australia) but the foreign bid is key in my opinion. It needs to be destroyed if Aussie kids are going to be able to afford a home on their own steam.

          • I do not disagree with you that credit growth is correlated with with price growth 😉 In fact, it wasn’t even my original point. If you think I’m wrong about the foreign bid and its weight, so be it.

            Just keep in mind that credit growth is correlated and that it may be the case that sometimes or even most of the time price growth leads credit growth and not necessarily the other way around.

      • again the data says otherwise. mandarin money escaping china has been a vector in RE growth from vancouver to sydney, its still credit driven and as i said the r value is .82. this is the data, you can deny it all you want.

    • I remain inthe deflation then inflation camp…

      BUT

      Boy, oh boy! These central bankers and govts really know how to screw currencies and throw money into assets!

      Can they create their own reality? I really don’t know anymore…

      So. Much. Debt Deflation.

      But. So. Much. Commitment from the printers.

      Wow.

    • buttzilla twennythree

      yeah GC/Burleigh will be out-of-cycle decline in 2 years, I actually expect it to rise next year will melb/syd exodus.

    • “Most commercial tenants not paying rent, I’d nearly go as far as saying nearly 100% not paying the full amount”

      That’s not true. I know a few people all paying 100% of the lease for their premises.

      • yeh i tend to agree. the solvency problem is post september. thats when leases will break

  3. SoCalSurfCreeperMEMBER

    Having lived through the US mortgage bubble it really fell apart once things got so crazy that new loans (<6 months old) started to default in significant numbers. At that point investors would no longer fund mortgages because it was clear the numbers just could not work no matter what.

    • darklydrawlMEMBER

      And a lot of that happened as the ability to refi was stopped, partly due to prices no longer rising (you couldn’t refi into the equity growth) so default was the only option. And don’t believe all the Aussie BBQ jibber jabber about jingle mail. In the majority of US states they have full recourse loans, just like we do here. And ‘jingle mail’ is no picnic financially even when it is an option.

      • Mostly incorrect.

        All purchase (original) loans are non-recourse. Refi’s are full-recourse. So… if you Equity-Mate’d then, technically, you’re on the hook (though in the GFC I don’t recall any stories about this occurring in any sort of volume). This is the whole reason we left Oz in 2016 for California (plus the fact that we bought for 1/3rd the comparable in Canberra). No way I was going near 7-figures on a full-recourse loan, no matter the continent.

        • darklydrawlMEMBER

          Not saying you are wrong, but that has not been my experience with the US property market. Many people would get low rate teaser ARM loans with the explicit understanding that they could refi them six month down the track before the teaser rate ended and the higher rate would kick in. When the banks stopped refinancing these loans the manure really hit the blades. The recourse laws vary between states, although most of the lenders (naturally) prefer full recourse loans where they can write them.

          Agree the US property market is a lot more ‘friendly’ on many metrics than Oz and way better value. Disclaimer: We own IPs in the US.

          • My research was from back around 2006, and it does ring a bell that not all states are non-recourse, but I believe those are Jumbo (non-conforming / non-Fannie/Freddie) loans. Probably are differences again for non-primary residences. I was looking specifically for conforming primary residence info, so IPs (potentially held by dirty dirty fer’ners 😉 ) are very likely different again. The cash-out equity extraction game is strong here, too, and those (exploding ARMs or no) would be quickly swept up under refi and therefore full-recourse.

            So… we’re probably both right, depending on the background/circumstances 😛 American non-jumbo (loan amount under $419,000 or so) is, generally speaking, non-recourse. Jumbos/non-primary residences… depends on the state and refi’s generally are full recourse (based on my circa 14yo research).

          • darklydrawlMEMBER

            “we’re probably both right” – I agree. The market over there is complex with many options as your post points out. Your data is certainly valid. Glad you posted it here as it helps explain the situation.

    • Arthur Schopenhauer

      I had a front row seat on a number of city scale US developments in 2008. The imminent collapse obvious, but all the senior people seemed oblivious to reality. (At least in public.)

      • Jumping jack flash

        Business as usual. What else do they do?

        I worked for a company that went bankrupt in ’08.
        You could sense something was wrong for months, but it was all business as usual. Nobody said anything. The CFO resigned. Christmas was cancelled. Still, business as usual.

        Then one morning the computer system was shut down, the phones were all turned off, and our line managers summoned us to the executive floor where we were introduced to the administrators.

        Then we were all sent home.

  4. working class hamMEMBER

    When will the Govt start throwing money at the property market? I’m interested in how stupid it’s going to get.

  5. scottb1978MEMBER

    I really hope we get a legitimate bust here that can’t be papered over and resets everything so we can all start again fresh. The alternative of a 15-20 year grind lower would suck.

      • can you really size this? thats an artform i would have thought,. do you really think govts are capable of sizing a reflation short? they have probably overcooked the first 200 billion i reckon and will be wishing they had more firepower when they are pushing a trillion? im not saying you are wrong im just saying your assumption that muppets in govt are capable of this is not rational, wouldnt you agree?

  6. Denis413MEMBER

    who uses bonuses as part of their loan application anyway?? surely it’s just a bit of cream on top if the banks are willing to accept it. On balance, this doesn’t appear to be that material to the loan application process.

    • darklydrawlMEMBER

      Part of the reason loan applications are taking longer than before (circa 5 weeks vs 48 hours) is the risk assessors are actually verifying the paperwork and doing the sums. Until recently you could fudge a lot of those values and they would rubber stamp it through. I know it sounds nuts, but it’s also true.

        • darklydrawlMEMBER

          Yes, correct BurbW. There are numerous reason for the delay, of which better checking is only part of the story. But at least they are doing it now….

    • Jumping jack flash

      Almost everyone.

      Bonuses, overtime, everything. Put it all in, write down the biggest number you can.
      Work out how to pay the debt after you get it and hand it all over to someone so they can get instantly rich beyond their wildest dreams.

  7. If you had a IP or OO with a morgtage attached the overwhelmingly smart move would be to sell now before the tidal wave of forced sellers hits the market come spring when JobHider runs out.

      • Swampy, I don’t think they exist yet.

        But I remember working in finance during the GFC and it is amazing how this stuff moves really slowly when you live through it but really quickly when viewed historically.

        The forced selling will come. The water is only just starting to recede.

      • darklydrawlMEMBER

        North is right Swampy. It’s too early. Forced sellers are likely 12 months away or longer. People will hang on, get subsidies and support from the banks and government, make limited payment or get moved to IO on a temp basis. But if the owner’s situation doesn’t change the bank will cut their losses at some point. Remember they will heavily support first cohort who get in trouble, both because it is easy/inexpensive to do and good PR. But if a larger percentage of the market need that sort of support it rapidly becomes a game of hot potato with the slowest bank holding the biggest losses.

  8. I asked our broker to run the numbers recently. ANZ had the biggest cash bonus on offer to switch to them. The desktop vals came back- I was surprised by how big the spread was, guess who had the best one by far? …Deidre Chambers!

  9. Jumping jack flash

    “The Australian Banking Association today released new figures which showed 429,000 mortgages had been deferred totalling $153.5 billion. The figures take the total number of loans deferred to 703,000, worth a value of $211 billion…”

    When you consider that the total value of mortgages is a touch over 2 trillion, then that’s really a drop in the ocean, about 10%.

    But, it will need to be monitored of course, it represents about 2 years’ worth of interest repayments, out of a 30-year mortgage.

    Even though it sounds like a lot, the banks still don’t have much to worry about
    Just to put it into perspective.

    • Haha 10% of the balance, hey?

      But Martin North says that 40% of households are in mortgage stress…. hmmmmm. Must be some pretty pedestrian stress if they didn’t even ask for a holiday when they’re being given out like candy.

      Perhaps Marty should recalibrate his tool?