Banks overwhelmed by unprecedented mortgage demand

All recent data shows that Australian mortgage demand is white hot.

The official lending commitments data from the Australian Bureau of Statistics (ABS) showed that the value of new mortgages (excluding refinancings) issued in December surged to record highs following explosive 31% year-on-year growth.

This growth was driven by owner-occupiers, where the value mortgages issued rocketed by 39% in calendar year 2020:

The CBA’s internal data for January also showed that new lending for housing soared to new highs:

It seems Australian lenders are struggling to cope with the influx given mortgage approval times have blown-out to months:

Agents claim mortgage approvals are blowing out from around 20 to 60 working days as lenders struggle with rapidly rising demand and a growing backlog of applications, worsened by COVID-19.

“Some lenders are not even opening the files for 21 days,” says Karen Firth, an agent in Perth…

“All the major banks are very slow and, in many cases, are not picking up files for a first review for 15-20 days” [Barry Thatcher, of Thatcher Finance].

The blow-out in mortgage approval times could pose issues for many borrowers given only one-in-five buyers planning to make an offer for a property have financed secured, according to analysis by the Real Estate Buyers’ Association.

It is also a sign of the insatiable demand for property on the back of rock-bottom mortgage rates, government stimulus, and good old-fashioned FOMO (‘fear of missing out’).

Unconventional Economist

Comments

  1. I don’t understand. If the way out of the debt burden we have created is to inflate away the debt. However, we are doing this by expanding debt. I don’t see how this helps us. Don’t we just end up with a bigger debt pile?

    Ian

    • Cut rates hope the extra debt stimulates wage inflation to inflate away existing debt
      -> no wage inflation
      -> rinse and repeat many times
      -> Permanent zero mortgage rates. Nobody need to repay debt.

    • Hmm yeah you have now knocked on a real problem here. The way it should be is that you do easy money policies to inflate the debt away but these easy money policies should be directed towards PRODUCTIVE economic activity so that it generates further income down the track to get you sustainably OUT of the debt hole.
      The issue here is, the money flow towards the unproductive economic activity of house flipping is so entrenched in the australian financial landscape is all you get is a bigger debt burden after each kick of the can.
      Eventually this is not sustained and it collapses under its own weight.
      But this isnt inflating the debt away, asset inflation is just adding to debt burden. I think inflating the debt away more refers to price inflation in good and services but thats playing with fire.. some are talking about that inflation panic.. lets see if that takes hold or fizzes out.

      • Jumping jack flash

        In a properly functioning economy debt is not required and interest rates don’t do a single thing outside of the banks.
        If debt is used it is used for expanding productive capacity and that naturally takes care of the interest and grows the economy.

        Its also far too slow, and risky.

        And being productive is far too damaging to the environment. We have targets to achieve, dammit!
        Nothing’s cleaner than debt. Nothing’s faster, nor easier.

      • Don’t worry, it’s pretty hard to have mortgage lending at this level when some of the banks are gone by Xmas.
        I’d say we will have a decent period where there is no lending at all until they get the banks restructured.
        Doubt there will be 4 next year. Maybe 2

        More free money more inflation higher interest rates….have your choice because it’s one or the other.

        They have pushed this so far, we are at the point of no return

    • your view is far too long term, for those in power you need to focus on “until the next election”, or “until my contract finishes”

    • Jumping jack flash

      Easy!
      I’ve been saying this for a while, and it doesn’t depend on lower interest rates, it doesn’t need immigration. It doesn’t need anything. Just pure debt inflation.

      Starting from a point in 2019 where everything was fundamentally broken:
      step 0: Stimulus (like COVID stimulus) supports monumental rise in debt
      step 1: increased debt spending supports rise in CPI
      step 2: CPI rises supports wage inflation
      step 3: wage inflation supports more debt
      goto step1:

      easy!

      The debt is attached primarily to houses. The house prices rise as a result enabling more debt. The most important piece of the puzzle, and the piece that has been missing due to wage theft is CPI.

      And it accelerates, as is necessary until it goes exponential. The result is debt hyperinflation.
      But with the missing CPI included, we have the all important feedback into wage inflation. Just like we had back in 2007.

      And this time they’re not stupid and try to “slay the inflation dragon” like fools.

      • >> step 3: wage inflation supports more debt
        What happens when your lever to wage inflation is broken via lockdowns and parts of economy basically shut for a few years still?
        How do you prevent stagflation in this instance? Wrong to say inflation cannot exist without high employment with wage growth.. 1970s did happen.

        • PlanetraderMEMBER

          Depends I think on what people are using as a measure of inflation – the average punter probably has three main sources of inflation to measure, mortgage (so no inflation here assuming rates stay low), food (IMHO soft commodities could be poised for a big run in next 12 months (i.e. wheat could double etc) and fuel (oil likely to rise as well). So even if interest rates stay low, the other two which make I would think a fair proportion of budget, may gut family budgets in the months to come.
          Also, China I assume imports a lot of grain to feed their pigs and people which has to be shipped meaning higher food input and fuel prices could squeeze them as well.
          That to me is a big risk going forward.

  2. Nup, nothing makes sense here Leith.

    https://www.cairnspost.com.au/business/banking-industry-cautious-about-end-of-jobkeeper-and-rise-in-mortgage-defaults/news-story/3e42fa9e1fa75786e02c379c6bf12797

    ‘Stories from the housing market were at the forefront of discussions at the event, with Accenture Australia managing director Andrew Charlton noting: “There is something here that feels like it does not compute.”’

    Immigration is zero, rental vacancies have barely changed and so who is buying? The data says it’s basically OOs, so it’s people buying second homes? Can’t believe returning Australians buying would be large enough to move the market that materially. Is it a small segment of the rental market (high density apartment) running to the suburbs and regions? The data should give us the answers somewhere.

    I’ve got a future big 4 CEO who’s as bearish as I’ve ever seen, even telling bull mates not to touch super as they’ll be blacklisted. I’ve got another mate with an asset base of over $3m, still earning over $300K and being told he can only qualify for a loan if he cancels two credit cards. Amidst all the confusion I decided to bait one of the big 4 with an online enquiry – no interest in buying, just a piddly $200K that I wouldn’t have thought would be worth their effort in a tearaway market. Three different consultants have harassed me and the Mrs for the last two weeks.

    • your mate on 300k, what is his current servicing and debt profile

      We are just about to refi away from WBC to CBA – 2 week wait for appointment with branch lending manager but it’s basically pre approved – 1 income, D/I 4.5 LVR 65% and no issues with bank. we don’t have any other debt though, own our cars, pretty simple finances. wealth package, waived 1st year, large discount to std variable. CBA 2.6 on a variable is pretty low.

      nab pre-approved but haven’t rung me from 2 weeks ago

      BWA had us pre approved in 3 days, valuation done in 5, probably approved today/tomorrow – so < 2 week turn around.

      ubank is a 2 week wait just to get an appointment on a scratchy line with someone with very poor english – not making any inference here, just an observation of n=1 experienc

      • In his 50s, PPR paid off (worth $1m), Government super (defined benefit) forthcoming worth $1.5m and an IP at about 50%LVR worth $600K. Also owns land he’s building on in the bush worth $250K, looking to fund construction of house on it. Maybe it’s an age thing?

        • If he is looking for a 25 or 30 year loan in his 50’s it probably is an “age” thing.
          how does he plan to service it in his 80’s?

          • Would have thought it’s a bridge until he gets access to the lump sum, which pays the debts and then some. Not sure how big a consideration the age issue is as it doesn’t seem to stop most of society from accruing more debt at these age levels. Refinancing to fund consumption is huge in this cohort. Besides, NCCP was so yesterday and supposedly more so with Joshy steering the ship. Again, doesn’t match the rhetoric we’re hearing.

        • Sounds like a leech. Good salary, probably not overly taxing job (engages consultants when it gets too difficult), good super arrangement and they still felt the need to get an investment property?

          I hope he never complains about housing affordability or has kids that may want to buy their shelter.

    • I’m 58 and my partner is 53. We just got approval for a small mortgage over 20 years that we’ll pay off in about 4 years. LVR about 25%, Debt to income about 0.8. Took about a week from go to whoa.

    • innocent bystander

      you’re right
      doesn’t add up.
      I have been told by 2 agents they have been told by the banks to expect a flood listings in March. wouldn’t elaborate why.
      meanwhile in my Perth neighbourhood homes are selling before the 1st home open at 20% increase to valuation 6 months ago.
      definitely FOMOing. buyers? a lot of FHB, also middle aged (buying for their kids?). ppl buying 2nd home in bush locale. not so much the investor from what I can see.
      the other odd thing for an area where rentals are usually hard to find new rentals are sitting on the market. my only guess is renters are not wanting to enter into a new lease because they want to buy.

  3. What are they going to do the next time the level of credit becomes unsustainable? Interest Rate lever isn’t there any more.

    • It already is unsustainable. The RBA is praying that growth/wages/inflation accelerate enough to make the debt sustainable, all the while it pursues the debt accumulation policies that ensure long term economic stagnation.

      But it’s really a third order issue for Captain Phil right now. In the short term, he only cares about stopping the dollar from rising.

      https://www.smh.com.au/business/the-economy/here-s-the-unspeakable-truth-about-the-strange-behaviour-of-interest-rates-20210220-p5749r.html

      My favourite quote of the past week:

      “Current policies represent short-term relief purchased at great cost by policymakers to cover up fundamentally unsound economic structures, chronic stagnation and societal pressures, particularly persistent inequality. The world is addicted to ever lower interest rates and QE. Protestations that these are merely short-term, emergency measures have the conviction of an addict’s insistence that he can give up any time, as long as it’s next week.”

      https://www.afr.com/policy/economy/the-opiate-of-low-interest-rates-20210209-p570zo

      • @Bucket – Mr Das had 2 good articles in AFR in last couple of weeks.
        Agree that the quote was very good.

      • Jumping jack flash

        “The RBA is praying that growth/wages/inflation accelerate enough to make the debt sustainable”

        The missing ingredient is CPI. We had that back in 2007. Everyone was happy, wages were inflating and prices were inflating. Debt was inflating. It was truly a golden age of debt.

        And everyone jumped up and down for some reason. The Central Bankers had forgotten to remove the link between CPI and interest rates!! The fools!

        Workchoices was invented. When that failed, foreign workers were flooded in which killed absolutely any chance of economic recovery.

        It seems we haven’t learned from our mistake. They need to hold off on resuming wage theft at least until after the 2 trillion US stimulus starts getting leveraged at 95% LVR.

      • PlanetraderMEMBER

        Apparently according to a mate in funds management APRA sent letters around to institutions recently asking them about their position/preparedness etc if interest rates go negative.

        Can anyone else verify this?

  4. Are the PI’s nervous? At this rate there won’t be anyone around to rent their dogboxes…. they’re all buying or building.

      • They are but they’re not. Don’t ask Don’t not tell:)
        Country Vic mid level town 150km out of melbs….. 3-4 vacant or derelict homes on every block. No kidding.

    • With zero immigration and no international students this year property investors in Sydney and Melbourne will struggle to fill their properties with tenants.I am expecting further falls in rent as we get to the middle of the year.

      • RobotSenseiMEMBER

        That might be half the problem: with banks struggling to process new loans, they’re not going to sell in a hurry.

        Tick… tock…

  5. working class hamMEMBER

    What is the definition of a “New Mortgage”?
    The definition that is used, makes a huge difference in interpreting the relevance of the graph.
    Something along these lines, would be my guess. “A successful loan application that is not refinanced from an existing loan, either from the same or different institution.”

    Using that definition, a whole lot of mortgages fit under the “New Mortgages” umbrella and dilute the actual relevance of what just looks like a high churn market.

    • Others have speculated that the deferred loans are being replaced by “new loans” (hence the spike) funded from the TFF. This will buy some time before those loans have to be categorised as non-performing. Moreover, at the end of the term of the TFF it can be conveniently written off by the RBA.

      Sounds plausible, but I have no way of verifying the details.

  6. Bond Yields Trends …

    What happened Monday … David Chaston … Interest Co NZ

    https://www.interest.co.nz/news/109164/review-things-you-need-know-you-go-home-monday-strong-farm-sales-searing-mortgage-market

    … extract …

    … SWAP & BONDS RATES TAKE OFF AT LONG END

    We don’t have today’s closing swap rates yet. If there are movements today, we will note them here later when we get the data. It is likely they will be rising, especially at the long end. Today the 90 day bank bill rate is down -1 bp at 0.27%. The Australian Govt ten year benchmark rate is 6 bps higher at 1.56%. The China Govt ten year bond is unchanged at 3.30%. But the New Zealand Govt ten year is up 13 bps today to 1.65%. That is well above where the earlier RBNZ fix was, at 1.59% ( 8 bps). The US Govt ten year is up 4 bps from this morning, pushing on up to 1.38%.

    Bond Selloff Prompts Stock Investors to Confront Rising Rates … Wall Street Journal

    https://www.wsj.com/articles/bond-selloff-prompts-rethink-bystock-investors-11613919600

    Shares make guarded gains as bond yields, resources spike … Reuters

    https://www.reuters.com/article/global-markets-int-idUSKBN2AM05U

  7. People are paying overs with expectations of a quick up-tick in the market – gambling. Australia’s structural economic problems will come to bear at some point.