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How will the end of mortgage deferrals affect the housing boom?

mortgage deferrals

Australia’s red-hot property market has enjoyed extraordinary support from the federal government’s economic stimuli, wage subsidies and leniency in lending policy from the banks.

A key question now is how the market will adjust as this COVID-19 induced emergency support is wound back.

At the height of the worst peace-time recession in a century last year, banks pulled out all stops to avoid a meltdown in the asset that dominates their loan books: residential property.

Home loan and small business customers were given an option of putting their loan repayments on hold, and hundreds of thousands took up the offer. At the peak, banks allowed some $250 billion in small business loans and home loans to be put on hold.

These deferrals officially ended at the end of March and banks say the vast majority of affected customers have returned to making mortgage repayments. However, a small minority are still struggling – some may need to eventually sell their properties.

Commonwealth Bank provides a case in point. It says the overwhelming majority of people who deferred have returned to making repayments or restructured their loans. About 1.9 per cent are working with teams that help sell properties.

The bank has a moratorium on forced sales by owner-occupiers until September.

CBA retail banking group executive Angus Sullivan expects the end of deferrals would have a “very, very marginal” impact on the supply of homes for sale, as it would probably be overpowered by the stimulatory impact of ultra-low interest rates.

“I think the driver of the housing market, first and foremost, is probably low rates,” Sullivan says.

CBA’s rivals have experienced similar trends. National Australia Bank had 1037 deferred home loans at the end of February after allowing about 110,000 people to pause repayments last year.

“Given the significant number of customers who have returned to making repayments and additional support available, we don’t expect the end of deferrals to have a material impact on the housing market,” says NAB’s group executive for personal banking Rachel Slade.

Westpac has about 2000 loans in deferral – a tiny proportion of its mortgage book, while official figures last week showed ANZ Bank had 0.9 per cent of its housing loans in deferral at the end of February.

However, the end of mortgage deferrals could still weigh on some parts of the property market.

CoreLogic research director Tim Lawless says the risk from deferred loans has “significantly diminished,” though parts of the market dominated by investors could still feel the impact of deferrals ending.

Banks have not said where most of the remaining deferred loans are located, but Lawless says they are probably concentrated among investors, particularly in inner-city Sydney and Melbourne apartment developments. He believes banks would start being less patient with struggling property investors.

“Just reading between the lines, it seems like there will probably be less flexibility for investors,” he says. “It’s a net negative for the housing market but I think the impact will be quite localised.”

Like the banks, Lawless believes the broader property market has enough momentum to offset the impact of loan deferrals ending, but he does not think the pace of price growth can continue for much longer.

It is clearly not sustainable for Australia to continue notching up the fastest growth in house prices since the 1980s at a time when household incomes are not rising. It will simply get too expensive for buyers to keep bidding up prices.

The end of JobKeeper and other government schemes, including building grant program HomeBuilder, are also likely to temper the red-hot demand for housing in the months ahead.

 

Article Source: www.brisbanetimes.com.au

Finance

New low as Homestar Finance cuts its two-year fixed owner-occupier rate to 1.74%

Homestar

Homestar is equal lowest with Reduce Home Loans for the lowest variable rate at 1.79%.

Homestar Finance is offering the lowest two-year fixed rate in the home loan market.

Homestar Finance has cut its two-year fixed owner-occupier rate by 14 basis points to 1.74%.

The rate cut move knocks Westpac from the top spot after it offered the lowest rate.

The increased rate competition was dubbed a “raging rate war” by the Mortgage Professional Australia website.

“This loan is the lowest two-year fixed rate on the market and also the lowest overall home loan rate available nationally,” RateCity research director Sally Tindall told The Australian.

“It also has one of the most competitive revert rates at 2.24%.”

Some 450 fixed mortgage rates have been cut over the last two months.

Homestar is also equal lowest with Reduce Home Loans for the lowest variable rate at 1.79%.

Greater Bank has the lowest fixed rate in the market, with its one-year fixed rate sitting at 1.69%, with the rate only available to customers in New South Wales, Queensland and the Australian Capital Territory.

 

Article Source: www.urban.com.au

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Finance

Warnings over proposed overhaul of responsible mortgage lending

mortgage lending

Record high mortgage lending to owner-occupiers, surging property prices and lenders offering low deposit mortgages could make for a perfect storm if the government’s attempt to repeal responsible lending obligations is successful, critics warn.

They say loosening responsible lending obligations would add fuel to the already hot property market and increase indebtedness, leaving home owners struggling to meet repayments if interest rates were to rise.

Figures from the Australian Bureau of Statistics for January show a 52 per cent increase in the value of new home lending to owner-occupiers compared to January 2020.

The government says repeal of responsible lending obligations is needed to free up credit, particularly to small and medium-sized businesses, and to remove red tape for lenders and borrowers. It says the protections for vulnerable customers are preserved.

The responsible lending obligations have been a bulwark of consumer protections since coming into effect in 2009. They require lenders to make credit assessments and approvals in accordance with the obligations and help ensure people are not being sold into unaffordable loans.

The government decided to pursue repeal of the obligations last year, during the depths of the COVID-19, after consultations with banks, as a way to get credit flowing through the economy again.

But with the economy staging a V-shaped recovery, house prices booming and mortgage lending for owner-occupiers at record levels, critics, including researchers, many consumer rights groups and some economists, say the responsible lending obligations are needed more than ever.

“It’s crazy to think the government is still pushing ahead with the scaling back of responsible lending obligations at a time when the property market is going through the roof,” says Sally Tindall, the research director at RateCity.

 

Article Source: www.brisbanetimes.com.au

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Finance

Top 4 Reasons To Get A Personal Loan

Personal loans can be your saviour when you find yourself in the following situations. Here are the top four reasons people apply for personal loans.

 

Multiple Payments Consolidation

One of the top common reasons to take personal loans is credit card debt consolidation. People apply for personal loans when they are required to pay off debt on more than one credit card while accumulating all outstanding credit in a single payment (monthly). This repayment strategy enables the loan-taker to buy some time for paying off the debt without feeling overwhelmed with the financial burden.

People take personal loans for paying off on credit cards because it includes lower interest rates. Debt consolidation enables people to have a strategic approach while paying off credit card loans within a clear time frame.

Alternative of Payday Loan

You might have already heard about the payday loan. If you need urgent money that you intend to pay off on your payday, you can opt for a payday loan. Nonetheless, if you want to save on interest charges, you can opt for the alternative – personal loans. The typical terms of repayment for payday loans range somewhere between two to four weeks. Now, personal loans exhibit more flexible repayment terms while exhibiting fewer interest charges. The typical scenario with payday loans is that the borrowers often have to borrow more money by renewing the loan as they fail to repay within the short time frame. Therefore, if you are looking for flexibility, we recommend that you consider personal loans instead of the less-flexible payday loans.

 

Renovation/ Reconstruction

Another common reason that people opt for personal loans involves home renovation and reconstruction. Upgrading and repairing one’s home usually requires a substantial amount of money as it includes a variety of stuff, such as plumbing, re-wiring, and redoing other things. Therefore, taking a personal loan is usually the better option for people who don’t want to put their house as collateral. If your home renovation and reconstruction requires a small to mid-ranged amount of money, we recommend that you opt for a personal loan.

If you are planning to move to a new state, you need to have at least $5,000 to bear the moving expenses. And if in case you don’t have that kind of amount with you, it is time to benefit from personal loans to cover your moving expenses. By borrowing some money, you can have your household belonging safely moved to your desired destination while covering all moving expenses, such as hiring a moving company.

Urgent Cases

Emergency situations can occur anytime. Be it a sudden medical expense or urgent cases of travel, last-minute invitations, animal services etc, several scenarios can force one to approach a money lender.

Hence, a personal loan can be the much-needed emergency fund that can be used in sudden and unexpected incidents.

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