300,000 facing home loan default: research

[utility]

http://www.abc.net.au/news/stories/2008/02/03/2153047.htm

300,000 facing home loan default: research

A new report suggests the mortgage belt is set to tighten. (File photo)

Economists predict the number of Australians likely to default on their home loans this year will increase because of rising interest rates, massive credit card debt and falling house prices.

Research by JP Morgan and Fujitsu Consulting quoted in Fairfax publications suggests 750,000 home owners will be hit by 'mortgage stress' in the coming months.

It is anticipated up to 300,000 of those will default on the loan and could have their homes repossessed.

JP Morgan spokesman Brian Johnson says one of the factors driving the problem is massive credit card debt.

"The fact is, the average household in Australia [spends] over three months of its disposable income on credit card debt," he said.

"The other thing is that in Australia we only have a system of negative credit reports, which means the credit bureaus only capture people who are defaulting on their credit card.

"There's no data captured about the actual total dollar value of debt."

ANZ chief economist Saul Eslake says a number of factors have contributed to the problem, but he says compared with international standards the number of people in trouble is still quite small.

"There are more than five million mortgages in existence in Australia and although the number of people who are encountering difficulty servicing them is clearly rising, the proportion remains extremely low, especially by comparison with the United States," he said.

 

[utility]

http://www.abc.net.au/news/stories/2008/02/03/2153051.htm

RBA urged to put rates rise on hold

Queensland's housing industry is hoping the Reserve Bank board will go against market sentiment and keep interest rates on hold.

The Reserve Bank is widely expected to raise the official cash rate by 25 basis points (0.25 per cent) following Tuesday's monthly board meeting.

Housing Industry Association spokesman Warwick Temby says housing affordability in Queensland is already at crisis levels.

"There's certainly been lots of people predicting that interest rates are going to go up again next week, but there's so much volatility in the market out there," he said.

"I think the best thing the Reserve Bank could do is to sit on its hands for a while and see how that market settles down.

"There's a real risk out there that the rug has been pulled out from underneath people's confidence to invest and what the Reserve is trying to achieve might already be happening."

 

[utility]

http://www.theage.com.au/news/natio...o-feel-the-heat/2008/02/03/1201973719868.html

More mortgagees to feel the heat in 2008

If interest rates rise by as much as half a percentage point this year 40 per cent of mortgagees will be in financial stress, the Mortgage Industry Association has warned.

"Our own research shows that about 40 per cent of mortgage holders have said that if there's a 50 basis points increase they will find servicing their mortgage much harder," association chief executive officer Phil Naylor told Sky News.

His comments come after research released today by JP Morgan and Fujitsu Consulting showed 750,000 homeowners will suffer mortgage stress this year.

Mr Naylor said the research did not mean those homeowners would default.

"They'll probably have to make other changes to their expenditures to enable them to service the mortgages," Mr Naylor said.

Many financial analysts are predicting the Reserve Bank will raise interest rates by a quarter of one percentage point when the bank's board meets on Tuesday.

Economists say it could be followed by another hike later in the year.

"People have borrowed a lot more because interest rates are so much lower than they were," Mr Naylor said.

But he said it had to be put into perspective and mortgage stress did not necessarily mean defaults on mortgages.

"The percentage of defaults across Australia is 0.2 per cent, that's a very small number," he said.

"Even if it doubles it only goes to 0.4, if it triples it only goes to 0.6, it's still a very small number."

AAP

 

[utility]

http://www.smh.com.au/articles/2008/02/02/1201801094694.html?page=fullpage#contentSwap1

Mortgage pain for 750,000 owners

UP TO 300,000 Australians risk losing their homes this year as rising interest rates and the credit crunch fuel severe debt.

As the Reserve Bank prepares to meet on Tuesday to consider another rate rise, analyst Martin North of Fujitsu Consulting predicted a dramatic escalation in defaults on home loans.

Joint research by JPMorgan and Fujitsu Consulting, due to be published next month, predicts that 750,000 owners will be hit by "mortgage stress" in the coming months, meaning more than 35 per cent of their income will be swallowed by home-loan repayments.

Of those, between 250,000 and 300,000 will suffer from severe mortgage stress, where they begin defaulting and risk having their homes repossessed.

"This is a problem that is now hitting Middle Australia. I don't think that the full impact of the credit crunch has yet been disclosed and it will get worse," Mr North said.

"Rates will go up by another half to 1 per cent over the year, so more and more people who are in an already fragile position are going to be hard hit."

The prediction of severe mortgage stress has more than doubled since the last JPMorgan-Fujitsu report in September, which estimated about 113,000 homeowners were at risk.

The number of repossession writs issued by the NSW Supreme Court has already risen by 67 per cent over the last two years, with 3935 orders issued in 2007.

NSW and Victoria will be hardest hit by the housing crisis.

Kim Quick, senior valuer at property advisers Herron Todd White, said increasing numbers of people were stuck in a housing trap where their home was no longer worth what they paid for it because it was over-valued when they bought it.

"A few years ago people were desperate to get on the housing ladder and were convinced that property prices were just going to go up and up," she said.

"Now they can't afford to stay but they can't afford to go either."

In the last few weeks, Ms Quick's company has overseen repossessions of an $800,000 house in Annandale and a unit in the central business district.

Last year, the company presided over the repossession of five neighbouring houses in one street in Kellyville, all within months of each other.

The spiralling home loan crisis is causing people to rely increasingly on credit cards and other forms of debt for everyday expenses, which is adding to their financial problems.

Personal bankruptcy orders in NSW rose by 23 per cent between 2006 and 2007, Insolvency and Trustee Service Australia (ITSA) reported.

Consumer Credit Legal Centre co-ordinator Karen Cox said counsellors had seen people with credit-card debts of $140,000.

Last month, the centre had 31 calls from people facing home repossession.

Geoff Lucas of the Wesley Mission's Creditline service said: "We are now seeing people from places like Kellyville and Rouse Hill who are in severe financial debt but are reluctant to come to our office in Blacktown for help because they feel like they are stepping over a social divide.

"They are coming in with huge debts.

"We had one family in Kellyville, living in a huge house with perfectly manicured lawns which looked lovely from the outside, but inside they were sitting on packing crates because they couldn't afford to furnish it and they had no money for food."

Charities are having to give out food parcels and other crisis help to home owners because their financial situation is so dire.

The repossession spike affects not only existing home owners - it has a trickle-down impact on all aspects of housing.

Mr North said the high interest rates and rising prices were preventing first-time buyers from getting onto the property ladder, leaving them competing in an ever more competitive private rental market.

Rents are already increasing by up to 10 per cent a year and tenants' advisory services in Sydney say that many renters were too frightened by the threat of eviction to contest unfair hikes.

In turn, increasing numbers of the poorest families are competing for a dwindling stock of social housing, many facing several years wait to secure a property.

Paul Gibson, state MP for Blacktown, said: "In 20 years I have not seen anything like this.

"I have people every day coming to see me because they homeless or have been waiting years for housing.

"It is just getting worse and worse."

The view was echoed by the Reverend Bill Crews, who runs the Exodus Foundation charity in Ashfield.

"We are having to redefine how we decide who is in need of assistance because over the last nine months we have seen a completely different type of person coming for help," he said.

"The number of families we are seeing who have mortgage difficulties has increased significantly.

"They come from all over Sydney."

 

[utility]

http://www.news.com.au/heraldsun/story/0,21985,23149213-664,00.html

Economists warn tough times ahead

Kate Adamson

February 03, 2008 12:00am

HOMEBUYERS will be hit with an interest rate rise this week, the 11th rise since 2002, most senior economists warn.

But a Reserve Bank move to lift the official rate by 0.25 per cent to 7 per cent on Tuesday could overstretch already debt-laden home buyers, some warn.

A Sunday Herald Sun survey of 12 leading economists and financial experts found most tipped a rise as the Reserve Bank struggled to contain inflation.

The increase will boost the average standard variable rate to 8.8 per cent, costing home buyers an extra $750 a year, or $62.50 a month, on a $300,000 mortgage and $1250 a year, or $104.12 a month, on a $500,000 mortgage.

ANZ chief economist Saul Eslake said the Reserve Bank would lift rates to slow inflation, which was at the highest rate since 1991.

"The domestic economy is continuing to grow at a pretty rapid rate," he said.

"My answer, though not a popular one, is that they will raise rates now."

Commsec economist Savanth Sebastian said the fact that private sector credit had grown by the fastest pace in 19 years, up 16.5 per cent in December from a year ago, coupled with a 24.3 per cent rise in business lending, would force the RBA's hand.

"There is so much money in the economy the RBA is having a tough time trying to keep inflation in check. As long we as we have stability in global markets, they will raise it," he said.

Access Economics director Chris Richardson said families, low-income earners and motorists would be worst hit.

"And this is not the last rate rise. There will be another one before the middle of the year," he said.

"The Australian economy is still sprinting. Consumers won't stop spending because their tax cuts are outweighing the rate rise."

Independent finance website Infochoice director Denis Orrock said those with big home loans and credit card debts could struggle.

"If people are experiencing trouble I'd encourage them to discuss it openly with their lender," he said.

"Contrary to popular thinking, they don't want you to go bankrupt."

AMP Capital Investors chief economist Shane Oliver was one of the few experts to tip rates would stay on hold as a result of the US economic slowdown.

"Turmoil in global markets and uncertainty in the global economy and the fact that banks recently raised rates suggests to me the Reserve Bank should leave it," he said.

Hamish Carlisle, of mortgage provider QuickDirect, said rates were sure to go up but the mortgage belt could save 1 per cent by hunting for a better deal.

"Regardless where interest rates are, there are ways customers with traditional banks can absorb the rise just by shopping around," he said.

Among the hardest hit will be first-home buyers, according to property research company RP Data director Tim Lawless.

"Nationally it now takes over one third of household income to serve interest payments on a home loan," he said.

"Another rate rise will make it all the more difficult for households who are struggling to enter the market."

Mr Lawless said the rate rise would lead to a slowdown in house prices, with the biggest fallout in the mortgage belt.

 

[Bombfire]

I take it you have a thing about mortgages ?

 

[Rob]

Boo hoo. How stupid would you have to be borrowing large amounts of money and not expecting interest rates to rise at least a few % over the term of your loan.

Other than the small minority who are victims of circumstance which has limited their income (injuries and the like), I don't have a lot of sympathy for people that are struggling with their mortgage after a few IR rises.

 

[Jafa]

Geez - why the smiley face.

 

[w00dy]

this was always coming, who is to say that interest rates won't increase another couple of percent over the coming years... what are people going to do then?

 

[utility]

Geez - why the smiley face.

I'm a bank manager.

 

[Sherrinator]

I'm a bank manager.

A **** manager more like.

But seriously, I blame the boomers.

 

[Brown Bottle]

I'm a bank manager.

Do you benefit personally in some way from mortgagees defaulting on their loans? Or are you just sheltered from rate rises?

 

[utility]

Do you benefit personally in some way from mortgagees defaulting on their loans? Or are you just sheltered from rate rises?

It was a joke, I am not a bank manager.

I don't take pleasure in people defaulting their loans, but I would be happy to see lower inflation, a stronger Aussie dollar, and a depreciation in house values... I'd say all that is likely to happen if we see interest rates continue to go up. I also have a savings deposit account so I'll get better returns on cash too.

 

[kenrosewall]

http://www.theage.com.au/news/natio...o-feel-the-heat/2008/02/03/1201973719868.html

More mortgagees to feel the heat in 2008

If interest rates rise by as much as half a percentage point this year 40 per cent of mortgagees will be in financial stress, the Mortgage Industry Association has warned.

"Our own research shows that about 40 per cent of mortgage holders have said that if there's a 50 basis points increase they will find servicing their mortgage much harder," association chief executive officer Phil Naylor told Sky News.

His comments come after research released today by JP Morgan and Fujitsu Consulting showed 750,000 homeowners will suffer mortgage stress this year.

Mr Naylor said the research did not mean those homeowners would default.

"They'll probably have to make other changes to their expenditures to enable them to service the mortgages," Mr Naylor said.

Many financial analysts are predicting the Reserve Bank will raise interest rates by a quarter of one percentage point when the bank's board meets on Tuesday.

Economists say it could be followed by another hike later in the year.

"People have borrowed a lot more because interest rates are so much lower than they were," Mr Naylor said.

But he said it had to be put into perspective and mortgage stress did not necessarily mean defaults on mortgages.

"The percentage of defaults across Australia is 0.2 per cent, that's a very small number," he said.

"Even if it doubles it only goes to 0.4, if it triples it only goes to 0.6, it's still a very small number."

AAP

Gee, awesome research. I would have thought interest rates going up would make servicing your mortgage easier

I have my mortgage fixed for five years still

 

[Magnum]

I never fix my loans, i like to be able to pay as much as I can, when i can.

I've copped the extra interest rates sure, but in that time I've also been able to pay far more off than a fixed loan would have allowed, negating any interest saving a fixed loan might have offset with rate rises.

Also if I sell my house and close out the loan, I wont get hit with fees like a fixed loan has.

 

[daddy_4_eyes]

Boo hoo. How stupid would you have to be borrowing large amounts of money and not expecting interest rates to rise at least a few % over the term of your loan.

Other than the small minority who are victims of circumstance which has limited their income (injuries and the like), I don't have a lot of sympathy for people that are struggling with their mortgage after a few IR rises.

Fair enough if someone starts struggling after one or two rate rises, but how many people sit down and factor in 7-8 rate rises in a short space of time? On a $300,000 debt that's an extra $500 a month people need to find which they didn't have to 2-3years ago.

I think the problem has been that the rate rises have come along side rising fuel & food prices and general costs of living, meaning people are being squeezed from all sides.

 

[Guido]

Fair enough if someone starts struggling after one or two rate rises, but how many people sit down and factor in 7-8 rate rises in a short space of time? On a $300,000 debt that's an extra $500 a month people need to find which they didn't have to 2-3years ago.

How hard is it to be more conservative and factor in worst case scenarios. Or save up more of a deposit and buy a more modest house in a less popular area, so no matter what happens you're still covering your mortgage comfortably.

If people stopped chasing the best possible house they could get, stopped taking out loans at 100% of the value of the property, and stopped overstretching themselves - with repayment schedules they find difficult to cover from the outset - they wouldn't find themselves in trouble.

Rates aren't exactly massive anyway - historically, even if you factor in another couple of interest rate rises after tomorrow, the cash rate isn't out of the ordinary.

 

[acker]

It was a joke, I am not a bank manager.

I don't take pleasure in people defaulting their loans, but I would be happy to see lower inflation, a stronger Aussie dollar, and a depreciation in house values... I'd say all that is likely to happen if we see interest rates continue to go up. I also have a savings deposit account so I'll get better returns on cash too.

And maybe a slight fetish for recessions and depressions.

You would be an ideal immigration candidate for Nauru.

 

[Aquamarinejewel]

How hard is it to be more conservative and factor in worst case scenarios. Or save up more of a deposit and buy a more modest house in a less popular area, so no matter what happens you're still covering your mortgage comfortably.

The more of a deposit you can save the better, as Guido has pointed out you have to factor in the worst case scenarios. Best to have all your bases covered or have some sort of a plan. In saying that, I do feel for those people that will be facing those home loan defaults...for some now "The Australian dream", continues to get harder to achieve.

 

[daddy_4_eyes]

How hard is it to be more conservative and factor in worst case scenarios. Or save up more of a deposit and buy a more modest house in a less popular area, so no matter what happens you're still covering your mortgage comfortably.

If people stopped chasing the best possible house they could get, stopped taking out loans at 100% of the value of the property, and stopped overstretching themselves - with repayment schedules they find difficult to cover from the outset - they wouldn't find themselves in trouble.

Rates aren't exactly massive anyway - historically, even if you factor in another couple of interest rate rises after tomorrow, the cash rate isn't out of the ordinary.

Not everyone is financially savvy, and for those that are why would they sit down and accept the worst possible case scenario? Of those 300,000 at risk, i bet most weren't mortgaged up to their **** when they bought their property, but circumstance would have changed and made things difficult.

To assume that all or even most of those who are facing home loan defaults overstretched themselves or made poor financial decisions is unfair.

 

[finders]

Looks like a few of the overpriced McMansions that many people couldnt afford will come in price or at least stablise soon.
If you cant afford it dont buy it!
One of little Johnnies interest rate lies coming home to roost!

 

[utility]

I found this site worth a read.

Looks like there will be some interesting times ahead.

 

[Guido]

To assume that all or even most of those who are facing home loan defaults overstretched themselves or made poor financial decisions is unfair.

How can it be unfair when it's the truth?

Leaving yourself within $400-$500 a month of defaulting is a poor financial decision. If a 1%-2% change in interest rates over 2-3 years dictates whether you keep your house or not, you over-committed when you bought it. Period.

They could have easily gone to Hoppers Crossing, Melton or Frankston North, bought a nice 3 bedroom house for $180K-$200K, with a 10%-15% deposit, leaving a loan amount of $150-$175K - a loan which any working couple in Australia can cover, no matter their wage - and could have still comfortably afforded the repayments even if interest rates hit 12%.

But no, they wanted the nicer house in a better sounding area and the $300K-$400K loan that came with it.

No-one put a gun to their heads to make that decision to purchase at that price or on those terms. No-one forced them to put themselves in a position of possibly defaulting.

Some people call it financially savvy, others call knowledge that interest rates can go up sharply and quickly as basic common sense.

 

[Scotland]

Boo hoo. How stupid would you have to be borrowing large amounts of money and not expecting interest rates to rise at least a few % over the term of your loan.

Other than the small minority who are victims of circumstance which has limited their income (injuries and the like), I don't have a lot of sympathy for people that are struggling with their mortgage after a few IR rises.

Spot on.

If you jumped in when rates were at their lowest and borrowed say $350k over 30 years @ 6% your repayments would be $2,098/month. That's $525 a week. Right now at 8%, they would be $2,568/month. That's $642 a week. If ~$100/week is going to default your loan, then you borrowed too much.

If you were earning say $55,000 p.a. you would have been spending roughly 50% of your gross income on your mortgage paying back to above loan. Right now you would be spending roughly 60%. In simple terms, you have $185 in the hand each month post-mortgage instead of $305. It bites, but its the price you pay for buying in when the market was booming.

 

[dmc333]

You'd wonder how many were already sitting on a mountain of CC debt before they even went for the house.