Sub-prime mortgages are back in vogue

As we know, the Australian Bureau of Statistics’ (ABS) latest lending data reported the biggest ever boom in mortgage finance commitments, up a whopping 55% in the year to March 2021:

New mortgage commitments

Australia’s biggest ever mortgage boom.

Amid the mortgage frenzy, there are increasing signs that lenders are dropping lending standards. The latest example came yesterday when NAB owned U-Bank announced that it is offering cheap 15% deposit home loans without borrowers needing lenders mortgage insurance:

UBank chief executive Philippa Watson said reducing the threshold would shave off roughly seven months of saving for home buyers…

“By only requiring a 15 per cent deposit and waiving the need for lender’s mortgage insurance, UBank can help shave nearly seven months off the process”…

Ms Watson said a reduced deposit could mean a homebuyer could be able to buy a property at a cheaper price than in six months, as prices continue to rise.

UBank will offer loans with a loan-to-value ratio between 80 and 85 per cent with a variable interest rate of 2.49 per cent, or a three-year fixed rate at 2.05 per cent.

CoreLogic’s latest Monthly chart pack also showed a marked deterioration in lending standards in the final quarter of 2020 – something that has likely worsened since:

Australian mortgage lending standards

Mortgage lending standards clearly deteriorated at the end of 2020.

The federal government has also gotten in on the act, flagging that it will offer more low-deposit mortgages in tonight’s budget, namely:

  1. A government-guaranteed home loan scheme will be offered to more than 125,000 single parents, which will allow them to purchase a home with as little as 2%.
  2. An extra 20,000 places will be offered under the existing first home loan deposit scheme, which allows people to acquire a mortgage with only a 5% deposit, with risk underwritten by taxpayers.

It is amazing to think that we are only 25 months past the final report of the Hayne Banking Royal Commission, which documented widespread irresponsible lending.

The lessons of the royal commission have clearly been forgotten with sub-prime mortgage lending swinging back into vogue.

Unconventional Economist
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Comments

    • There’s a time and place
      a moment in space
      when the fat boys call the tune

      There’s a bubble bouncin’
      and it’s bouncin’ my way…

      • Cause you’re using the fountain of devine life, as a bidet, which turns into a sh!t storm, that becomes sh!t creek, for all those below.
        Whoever came up with, as above, so below, had no idea about Australian property.

  1. Holiday In ScomodiaMEMBER

    All you need is your own imagination
    So use it, that’s what it’s for
    It makes no difference if you’re black or white
    If you’re a boy or a girl
    If the debt’s pumping it will give you new life
    You’re a mortgagor
    Yes, that’s what you are, you know it!

    • Vendors with an attitude
      Bankers that were in the mood
      Don’t just stand there, let’s get to it
      Strike a contract, there’s nothing to it
      Debt is in VOGUE

  2. Lord DudleyMEMBER

    Seems like if Australia can divert some of those current resource mega-profits to people holding all this debt, everything might be OK in the long run (i.e. no debt implosion).

    Will that happen? The powers that be seem pretty determined to keep every cent of that profit for themselves, and to make very sure that real incomes have a tight lid on them. A debt blowout without rising incomes sounds like a powder keg.

  3. Ritualised FormsMEMBER

    I actually know of a situation where two people – man and woman in their 40s – both on casual contracted out positions and not sure of their hours in any given week, and not paid holidays or if they happen to get sick – both reliant on government funding coming through for programmes they are associated with, have applied for a mortgage with a mortgage broker to buy a townhouse near Geelong-Surf Coast. No bank would touch them. In the time since they committed to buy (having scraped together a minimum deposit over 10 years, the value of the abode – now ready for occupancy – has probably gone up by circa 50%.

    This week they are about a month out from settling the purchase, having slapped their deposit down circa a year ago. They discover that their broker – who was recommended to them by the developer – has not even submitted their documentation to any lenders yet.

    As I had the story related to me I couldnt help but wonder if the broker would not actually submit the documentation, enabling the developer to score the deposit and sell the place for more to current buyers. I also couldnt help but wonder if this type of thing – as Leith mentions only 2 years past Hayne – is happening more broadly.

    But the whole thing just strikes me as a disaster waiting to happen.

    • Ronin8317MEMBER

      That is normal for off-the-plan purchases : you can’t submit a loan application until it is ready for evaluation which is usually one month before settlement. That being said, if they can’t get a loan with this mortgage broker, go with a different one. With the valuation being so much higher now, a ‘competent’ mortgage broker can definitely get them a loan.

  4. darkasthunderMEMBER

    it all works wonderfully while house prices rise. And we will do ANYTHING to keep it that way. When this comes undone it will be epic.

  5. The most concerning thing about this is they are now doing it In broad daylight.

    • Jumping jack flash

      Everything is revealed once it is too late to do anything about it. It becomes reality.

    • FUDINTHENUDMEMBER

      And the plebs are lapping it up. Everyone’s gonna blame the banks, the government, the rba when the proverbial hits the fan. But what about poor Robert and Jane Smith who used the equity in their PPOR to build an enclosed pool and verandah set up that they somehow managed to live without for 30 years, as well as buy a second investment property to “bolster their retirement income”. Gonna be very little sympathy from. Me for ANYONE caught with pants down..

  6. Jumping jack flash

    100% loans are around the corner, as they need to be.
    The notion of a deposit is outdated and inhibits growth in today’s economy of debt.

    While enough debt is generated at the correct rate then there will be enough debt in the system so the existing debt’s interest can be paid by the new load of debt as it is magicked into existence, and thats all that should be done. Repaying principal is unnecesary and deflationary when all the money in the economy is debt to begin with.

    And as long as the parameters of CPI and wages are correct, while debt volume remains a function of wages, then there is no reason why debt cannot expand forever, in line with the symbiosis of CPI and wage inflation. Controlled “hyperinflation”, but hyperinflation is a dirty word. Don’t know why. In a debt economy hyperinflation means hypergrowth and growth is awesome.

    Interest rates were used prematurely and i blame inept governments’ policy of CPI suppression which needed to be stopped around 2009, but it was kept going for an additional 10 years, with catastrophic results.

    • boomengineeringMEMBER

      In Zimbabwe hyperinflation didn’t result in hypergrowth. Disclaimer being that posts high probability of being a joke.
      btw we are missing bcnich terribly.

      • Boom
        I have a quick read but thought I’d learn from all of you
        I’m just sitting back observing
        I didn’t think they could find more schemes
        Single struggling mothers 2% deposit needed
        Who’s next the disabled ? 1% down

        If the property market is so strong why is there such a desperate attempt to find all these financially irresponsible schemes
        Boom I don’t write much because it’s pointless….the insanity is beyond belief

        Haven’t changed any of my views….I’m really not saying anything….I don’t need to, everything is just playing out in front of us

        Look at the nab survey, inflation is out of control…..economy is overheating….iron ore copper etc flying…..still think DXY has quite a way to fall …if that’s the case iron ore will be up at $250/300

        Very very long term commodity prices will be much much higher ……over next several years you’ll see iron ore above $500 ……the USD DXY long long term is heading down into 60 range….

        We will see AUDUSD elevated above parity for many years $1.20 or higher

        Over the next 5 years we are headed into very high inflation and much higher interest rates

        I’d say we are months away from RBA hiking or tightening

        • Jumping jack flash

          0% down very soon.
          There’s no risk so long as the debt grows fast enough to repay the previous debt’s interest (and create those lovely capital gains) and debt growth is dependent on there being no deposit – everyone is quickly waking up to that – and CPI feeding into wages growth to enable eligibility. Its remarkably simple.

          And looking around post-COVID it seems pretty obvious to me what they’re trying to do.

          $4 trillion stimulus? Really?
          What’s the total global COVID stimulus bill? something like 30 trillion or something? That leverages into a fair amount of debt.

          And COVID is pretty much licked.

          • kannigetMEMBER

            0% is already available if your willing to chase it and so a few creative accounting leaps of moral depravity. There are add from “Rivendell Finance” all over Farcebook detailing how they have had really good success getting approvals for people with no deposit…

      • Jumping jack flash

        The difference is when we do it everyone else will as well so there won’t be that problem where our currency and everything will relatively change so dramatically compared to everyone else who doesn’t need to hypergrow their economies for creating perpetual debt.

        And no, not joking. I am aghast, but unfortunately not joking.

        • Everybody else is doing MMT, except for China, Taiwan and Singapore. Will they be the only ones to avoid hyperinflation?

          • Jumping jack flash

            Interesting.
            If the party continues, and I believe they will try as much as possible into the realms of idiocy (if we aren’t there already), it may explain some global politics in the next few years.

      • Ronin8317MEMBER

        It resulted in ‘hypergrowth’ for some people connected to Mugabe though : the sales of luxury cars went through the roof, even if they can’t get the gas to drive them.

  7. GeordieMEMBER

    No such thing as a sub-prime loan in Australia. All loans, banks and related institutions are backed by the government. As long as you’re not defaulting on your own, it’s safe as houses!

    • Geordie
      There is ONE BIG DEFAULT coming in H2
      Let’s hope the 3 stooges act quick enough …..
      Gov guarantees what ever

      I go to yoga 4/5 times a week in the morning,,,,,it’s so calming,….you know that gentle music and the chimes…..truly I need to get away from this insanity, I’m not getting sucked into it …..the people at yoga only own a yoga mat, they have no idea about all of this and they are so happy…..tea afterwards ……

  8. Arthur Schopenhauer

    A bit late for a Developer neighbor whose company went into liquidation last month. Never seen a pair luxury 4wd move faster!

    • Arthur
      Start the list
      A friend children are building a land package in outer east Melb said their builders can’t start because there are no materials
      All these building contracts are signed on a certain price ….this job builder, the builders won’t be able to build for the price
      I’m told this happened in the US
      Builders will be going bankrupt all over

      That’s why I’m not saying much, I can’t even be bothered talking about it anymore it’s actually sad, and I need to switch the TV off, the BS is giving me a migrane

      • I am hearing similar things. Small builders will go bankrupt. Large ones will survive because they can use their connections to get materials at un-inflated prices (or import them directly from other countries, if necessary).

        • I’m not that well informed in this but just simple maths
          That’s a real concern that houses can’t be built, this job builder program will be a disaster

          That’s why I said a month or 2 ago that I think that the places that will hold value are premium homes on small blocks

          It’ll be land that deflates but the price of the home will be more valuable

          The issue will be that construction as a force driving the economy now is finished

          I know you have to live somewhere and have a nice life but the rich this decade will be the global mining magnates
          Twiggy, Gina
          There Zuckerbergs etc will go right down

          Perth WA is going to boom even bigger than 2000 to 2007

          The opportunities wiii be in WA

          The east coast will struggle ..,. think we relied on immigration student uni resi construction
          In the most part that’s all finished now
          East coast prices of everything (if you don’t agree with me on the meltdown) south east VIC NSW will deflate
          SE QLD will be a growth corridor for years

          If you can buy a property at huge discounts in a mining town that’s the best investment property

          But for me I’d stay away

          I’ve been saying for ages, Agri commodities wheat etc, metals copper zinc rate earths lithium … etc will be the best

          We are at the start of a decade long commodities super cycle

          The other issue for us will be the 2 speed economy, you low the WA booming mining and east coast struggling, we are going to have that Dutch disease again

          The AUD will be above parity for years which will really hurt everything except mining

          It’ll be too expensive for students to come here, too expensive for tourists to visit if the AUD is so high

          Guess budget will eventually have mining revenue

          Might long long term save our arxe

          Initially high iron ore won’t be good, that’s going to have a negative impact first before better

          • boomengineeringMEMBER

            Was in Sydney in the 73 recession, didn’t feel a thing. Was in Perth in the 82 recession, no point looking for a job. Completely different now that manufacturing has been abandoned, meaning Sydney will feel a lot of pain this time around.

      • https://www.theurbandeveloper.com/articles/home-loan-arrears-mortgage-deferral-ends

        ‘Victoria’s Altona East has the dubious honour of being crowned the worst suburb for loan arrears, followed by Forrestfield and Byford in Western Australia.’

        Some texture on Altona East – 99.9% of activity is Lebanese backyard mum and dad type ‘property developers’ buying and developing townhouse projects. They are going to get cooked.

        Mum’s neighbour is one of them. About to finish a two townhouse project, wants to live in one but the bank won’t give them the financing to keep it. Must be offloaded. He’s holding another development site down the road and doesn’t own his PPR (renting).

  9. Honestly, I’m not sure how old you all are….if you are around 40 you probably don’t remember 2006 pre GFC…..I have the same feeling every time I hear these price increases, red flags, sub prime but feels even more excessive this time but this time we are at 0% interest rates with inflation breaking out and an economy that couldn’t even take a 1% increase in interest rates

    That being said, we are now only months away from the greatest financial crisis in history,…..in magnitude probably more than 50x the size of 2008/9 ….

    I truly never ever thought they’d go to the lengths they are to keep the debt increasing at the speed it is, they know they have to because the minute it stops this all falls apart

    Unfortunately in H2, when the crisis hits credit markets are going to freeze like 08/09……it’ll be very hard to get finance that’s if the banks are standing

    Sadly this is going to now blow up in all our faces ….whether you have debt or no debt, we are all going to suffer

    No one will be able to avoid what’s coming

    • boomengineeringMEMBER

      08/09 not even a bump compared to 89/90s and this one has the hallmarks of much worse than both put together and worse economically than 1930’s. A little savings grace being technology more advanced so individual misery and starvation may be mitigated.

      • What’s coming isn’t even comparable to 20008/09 & 1989/90
        2022/23 you could possibly compare to 1929/30 but it’ll dwarf that also

    • Jumping jack flash

      2006/2007 was the golden age of debt, the time when the debt economy was really working as designed.
      They pulled the pin in 2008 because they got spooked by their own success. It took over 10 years and a global pandemic to give them the excuse to revive their masterpiece economy.

      This time they’ll let the inflation slide. Inflation is a critical ingredient of their system. Just wait and see.

      • I’m not sure the exact numbers but think global debt was $180T give or take now $250/270 T ….possibly 30/50% higher I believe around
        But the derivatives have quietly exploded higher ……the number bandied around used to be $600 T, do you remember that?

        I’m hearing now it’s 2,000 Trillion plus …..notional vale derivatives…..

        They used more debt to fix a global debt crisis

        What did they expect?

        • Jumping jack flash

          180T is surprising but I can believe that. Imagine 180T leveraged into glorious debt at 95% LVR!
          2000T of derivatives! 2 quadrillion dollars. That’s astonishing. It was “only” 600T not that long ago.
          A trillion here, a trillion there, pretty soon you’re talking real money.

          Fixing debt with debt? Well of course. What did anyone expect when our super-intelligent masters of all they can see put debt factories in charge of the global economy?

          These guys wouldn’t try to fix it with rubber ducks. Actually, factories that make and sell rubber ducks would probably serve some purpose for someone, but these particular factories make and sell debt, which is also completely unnecessary in the grand scheme of things.

          • boomengineeringMEMBER

            There is a similarity between 89 and 2009> . In 89 interest rates were of no consequence 17% 20% yawn, 2009 onwards principal 2M 5M yawn, who cares. Low principal then versus low rates now, blase’ then blase’ now.

  10. MB just posted iron ore price $229 I think…..today

    Looks like my price I said might be too low …….I’d say we will run quickly above $300

    But these idiot politicians will be boasting about iron ore price but it’s the high price that’s going to destroy us

    Honestly they are so stupid
    It’s not just iron ore ……copper lumber wheat etc all commodities

    The RBA will be raising interest rates in a few months,,,,,.and it’ll be much more than 25 bp, it’ll be aggressive hikes,,…but either way the market is going to push bond yields right up

    Where are we 1.65% 10 year now around,,,,,think we still see 1.20/30% now first ….market is still very short bonds but then up to 3 or 4% in H2

    CPI reads will start increasing now much more than they expect

  11. kierans777MEMBER

    A government-guaranteed home loan scheme will be offered to more than 125,000 single parents, which will allow them to purchase a home with as little as 2%.

    Of which only 2,500 will be selected per year. This is a farce. In #shadysukkar’s own electorate a 3 bedroom house is ~$750,000. A single mum on average earns ~$45-50Kpa Even on a 2% deposit how is a single mum going to afford that?!

    Michael Sukkar is is the Minister for Hopelessness I tell ya.

  12. APT ASX Afterpay is being obliterated today

    Think we may see Feb highs of $150 tested and might even break towards $200 over next couple of months

    These volatile markets can turn and reverse just as quickly as they fall

    Think NASDAQ is going to turn up and heads towards 20,000

    • The Travelling Albatross

      Scary times, thank you for your input
      (Yesterday I was asking about you and got mocked, glad you are back)

  13. Does anyone remember Freddie Mac & Fanny Mae? Low Doc, Sub Prime? Do we have that in OZ now? Single parents 2% deposit? Couldn’t be similar could it?

    • That’s right. Same stupid mistakes still happening. I agree with bcnich on the outlook.