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It’s Gone From Quite Liberal Lending To Quite Tight Lending Over Such A Short Period Of Time

A report from ABC News in Australia.”A new crackdown on property lending has emerged in the wake of the Banking Royal Commission, with borrowers now being asked for deposits of up to 30 per cent and banks throwing greater scrutiny on location and living expenses when assessing loans.”

“In addition, data obtained by the ABC shows the suburbs that lenders deem the most risky across Australia — a so-called ‘blacklist’ of areas where location is deemed more of a liability to people seeking a loan. In the new lending environment, one of the biggest shocks for borrowers is that the crackdown applies not just when accessing new credit, but also when refinancing existing loans.”

“This comes as some households are being hit by a surge in repayments as interest-only loans expire, triggering the need to begin paying down the principal amount borrowed that can add hundreds of dollars to monthly repayments.”

“Amanda Bearcroft said she was trying to sell a property on the Hawksbury River, north-west of Sydney, but the couple keen to buy her house were told they had to find a 35 per cent deposit. ‘At first they were told it would be 30 per cent, then the banks finally came back and said it was 35 per cent right at the very end,’ Ms. Bearcroft said.”

“Ms Bearcroft was concerned she now would not be able to sell the property. ‘The banks have just got too difficult to borrow money off,’ she said. ‘We’re really going to need a cash buyer to come in and people don’t have that cash just lying there. It’s really difficult. Everybody that’s come through and have been interested have been told they are required to pay 30 per cent.'”

“Experts say the two main challenges of lending are a borrower’s equity position (the value of the property) and their availability to service the loan (how easily they can make repayments). If the property market is going well, then borrowers only have one challenge — meeting the loan repayments. But the situation worsens in a falling market.”

“Perth homeowner Julia Ewert has been hit by the lending crackdown and said she felt the goalposts had suddenly moved. ‘When I came to refinance … I was told in short there was nothing they could do anymore,’ she said. ‘My interest-only term had expired and they had to roll me over to principal and interest. I’ve always been able to roll over my interest-only term when that expires … and now they’ve said, ‘You can’t do that anymore.'”

“Ms Ewert said she and her husband could not afford the $900 jump in monthly repayments required under the new lending standards and had been forced to sell their investment property in Perth’s south-east.”

“‘We’ve got two young children, a two-year-old and a four-year-old, so the stability is everything to us, it determines every decision we make as a family,’ Ms Ewert said. ‘This is not something I want to sell, I’ve had this property for 10 years. I’m selling because I have to.'”

“Ms Ewert’s tale was becoming increasingly common across the country as homeowners struggled to pay their loans amid an environment of tumbling prices. ‘Values are off 18 per cent in Sydney, which is an important number because that takes away 20 per cent growth on the way up in a market, property analyst Gavin Hegney said. ‘So for those buyers, they are now probably in negative equity situations and are probably feeling a little bit uncomfortable.'”

“‘We’d have to go back to the mid-1970s before we had the last credit squeeze in Australia,’ he said. ‘Although banking has been tight before, it’s just been the drastic change — where it’s gone from quite liberal lending to quite tight lending over such a short period of time — that’s caught quite a few people unaware and affected the market quite significantly.'”

This Post Has 27 Comments
  1. First, a message to all the writers and pundits who’ve said week after week for a year and a half, the bottom is here in Australia!

    You ain’t seen nothing yet.

    The ABC report is worth reading in full. Lots of maps on the blacklist areas, which if you’re in one – DONG!

  2. ‘We’d have to go back to the mid-1970s before we had the last credit squeeze in Australia…Although banking has been tight before, it’s just been the drastic change — where it’s gone from quite liberal lending to quite tight lending over such a short period of time’

    What you’ve missed here Gavin is that you’ve had liberal lending for decades and lots of compounding mistakes are made in those conditions. I mean, I look at the photos of these shacks, and I’m thinking, ohhh maybe 90% overvalued.

  3. ‘Ms Ewert said she and her husband could not afford the $900 jump in monthly repayments required under the new lending standards and had been forced to sell their investment property in Perth’s south-east’

    ‘We’ve got two young children, a two-year-old and a four-year-old, so the stability is everything to us, it determines every decision we make as a family’

    OK, out with the puffs, sniff. So when these people were riding high with their two vast loans, I bet they had a few nights out to celebrate their good fortune. Jeebus knows Australians are the…were the biggest shack braggarts on the planet. So now here come the tears, the regret, the…what stage of grief is this one in?

    https://grief.com/the-five-stages-of-grief/

    1. Stage 4 but likely still working through 1-3. Where you think AUS is in the 4 phases of real estate cycle:

      Phase I: Economic Expansion

      When businesses are growing and consumers are buying, the housing market tends to boom. Buyers flood the market and housing prices go up. It becomes a seller’s market, as properties are frequently overbid.

      Phase II: Hypersupply

      At some point, either developers overbuild or consumers can no longer afford the sky-high home prices. Houses sit vacant on the market much longer.

      Phase III: Recession

      A combination of factors such as high housing costs, rising interest rates or a cooling economy contributes to a housing slow down.
      Homeowners find their mortgages underwater and walk away. We see begin to see an uptick in foreclosures.

      Phase IV: Recovery

      Eventually, property prices fall enough to lure buyers and investors back to the market. So begins the cycle again.

    2. “So when these people were riding high with their two vast loans, I bet they had a few nights out to celebrate their good fortune.”

      Probably rocked on the balls of their feet while walking too. “Pride goeth before destruction, and an haughty spirit before a fall.” 16:18

    3. forced to sell their investment property in Perth’s south-east

      These folks were lucky. They still could sell and settle the loan.

    4. Ben, I’m surprised you didn’t highlight how Julia had “owned” the home for 10 YEARS and haven’t paid down the principal AT ALL!

      ” I’ve had this property for 10 years.”
      “I’ve always been able to roll over my interest-only term when that expires”

      1. “I’ve always been able to roll over my interest-only term when that expires”

        That’s exactly what popped U.S. housing bubble #1.

  4. Bank 34 abandoning mortgage lending
    Plans to shutter nine loan productions offices

    excerpt:

    t’s getting harder and harder for smaller lenders to make money in the mortgage business, as independent mortgage banks and mortgage subsidiaries of chartered banks recently reported that they lost $200 per loan on every loan they originated in the fourth quarter of 2018.

    And those tough economic conditions are driving lenders out of the mortgage business altogether. Earlier this week, it was Live Well Financial that announced it was terminating its mortgage origination business.

    Now, for the second time in less than a week, another lender is abandoning their mortgage business as well.

    1. “The bank keeps very few loans in its portfolio.”

      Their coffee machine and office plants are probably rented too.

  5. “Ms Bearcroft was concerned she now would not be able to sell the property. ‘The banks have just got too difficult to borrow money off,’ she said. ‘We’re really going to need a cash buyer to come in and people don’t have that cash just lying there. It’s really difficult. Everybody that’s come through and have been interested have been told they are required to pay 30 per cent.’”

    The rich all cash Chinese buyers will buy all these cheap properties. I might buy 10

    1. It is not a joke.
      I saw the Chinese used plastic bag to carry money for house downpayment in Hong Kong. Like I saw in the film.

  6. Good morning, REALTOR.

    Have you thought about looking for a real job today?

    1. They can join Real Journalists in learning to code, now the Oligopoly media outlets are shedding headcount.

  7. This is what a doom loop looks like. Draghi isn’t going to be able to print his way out of this one, and if he tries to resort to the usual bankster swindle of putting Northern European taxpayers on the hook for non-performing loans to Turkish builders and speculators, even the most supine of the sheeple will probably join nationalists and populists in revolt.

    https://www.zerohedge.com/news/2019-05-09/lira-doomed-turkey-emergency-currency-intervention-fails-under-two-hours

  8. Perhaps It’s Time to Start Worrying About Global Corporate Debt

    “Much of the increase has been driven by China as it transitioned from a negligible level of issuance of corporate debt prior to the 2008 crisis to a record issuance amount of $590 billion in 2016. During that time the number of Chinese companies issuing bonds soared from just 68 to a peak of 1,451 and the total amount of corporate debt in China exploded from $4 trillion to almost $17 trillion, according to BIS data. By late 2018 it had reached $19.7 trillion.”

    Is $20 Trillion a lot of money?

    1. “Sean Pan wanted to be rich, and his day job as an aeronautical engineer wasn’t cutting it.”

      I remember when an aeronautical engineer in the SF Bay Area meant living well, green lawns and shade trees up and down the entire street, stay at home mom, two late model cars, etc., whereas it is now dual incomes and careful budgeting to scratch by in a spec neighborhood.

    2. Before the last bubble burst a friend’s co-worker inherited a San Jose home, free and clear. A little late getting into the game as the bubble swelled she borrowed against her house using the money for a flip, which yielded a quick profit. The second time it worked too, easy money. The next flip she bet big and got stuck making payments on both places eventually mailing in the keys on the flip. To this day she is still making HELOC payments on her inherited home and unable to retire.

  9. In Baltimore, a TV anchorwoman got fired for noting the obvious: the past three mayors have been black, female, incompetent, and deeply corrupt, hastening the city’s downward spiral. As Orwell noted, “In a time of universal receipt, telling the truth is a revolutionary act.”

    Quote for the day:

    “Whoever would overthrow the liberty of a nation must begin by subduing the freeness of speech.”

    — Benjamin Franklin

    1. Correction: “In a time of universal deceit, telling the truth is a revolutionary act.” — Orwell

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