Mortgage Loans, Home Loans, Bad Credit Home Loans

The recent bi-annual report, compiled by JP Morgan and Fujitsu, surveyed 26,000 bank customers about their attitudes towards home loans. Most were barely keeping their heads above water and many have said that another interest rate rise will push them over into default territory.

Double digit growth is unlikely to continue in the home loan market.

According to research, increases in the cost of living, combined with higher interest rates and more stringent lending rules are likely to see fewer people applying for home loans.

Lenders could no longer expect the strong growth in home lending that had characterised the market since the early 1990s.

Consumers are becoming more debt averse and more careful with money – one of a series of factors foreshadowing an era of lower profit growth for lenders.

It seems that smaller players in the home loan business such as Non-bank lenders, credit unions, as well as boutique mortgage managers have successfully began to acquire market share away from the major banks.

According to JP Morgan and Fujitsu’s latest Australian Mortgage Industry Report, although major banks remain the primary source of home loans in Australia, the growth rate of their loan book has fallen away to high single digits from low double digits.

As predicted a year ago, there was a change in the growth dynamics amongst the major banks over the course of 2010 and this has continued during 2011. Following a period of strong market share gains since the onset of the Global Financial Crisis, the CBA and Westpac pulled back on mortgage growth and have been growing below total ADIs since August 2010, reducing their three month annualised growth rate from approximately 25 per cent to 5 per cent over the last 18 months.

According to new statistics, the housing shortage in Sydney is likely to approach 9,000 residences by the end of 2011.

Urban taskforce CEO Aaron Gadiel is arguing that the latest data from the Australian Bureau of Statistics confirms that Sydney’s housing shortfall is “running well short of government projections”. Just 13,200 new homes were homes were completed by the private sector in the last six months of 2010: the second worst result for that half since 1987.

Sydney’s  actual figures for home construction are entirely out-of-kilter with the optimistic projections issued by the NSW Department of Planning only a year ago,” said Gadiel. “This was based on their projection that Sydney’s supply of new residences would reach 24,900 homes in 2010/2011, and soar to 27,000 homes soon after.”

However current figures indicate that only 16,100 new homes are likely to be completed. This is 8,800 less homes than projected by the former government.”

The drop in numbers is due to both town planning delays and difficulties to obtain finance. Home Loans and Construction loans are today far more difficult to obtain that even 12 m0nths ago.

In inner suburban areas of Sydney where public transport is widely available, planning rules have been used to prevent new pedestrian-friendly apartment construction from getting off the ground,” said Gadiel. “In Western Sydney, a mixture of slow land release and a lack of government infrastructure investment have prevented sufficient new housing numbers. This is a disaster in waiting and need to be urgently looked at.

According to a recent survey of mortgage brokers conducted by Homeloans ,non-banks will remain prominent in the Australian mortgage industry.

Almost 50 per cent of all mortgage brokers believe that it would not be hard to recommend a home loan provider to a borrower who wasn’t familiar with that lender – an increase from 40 per cent six months ago.

But, Homeloans general manager third party distribution Tony Carn said there’s still a lot of work that non-bank lenders can do in order to promote their services to prospective borrowers and close the gap between the non banks and the major banks.

Most Mortgage Brokers are now more willing than in the past submit loan applications to a non bank, but there’s still a lot of opportunity for them to boost volume of home loans submitted to non-banks.

Since the proposed abolition of exit fees became law,  exit fees are a psychological barrier and they won’t refer home loans that still come with fees.

Mr Carn said the survey also found that borrowers view non-banks favorably as well.

Consumers’ dislike of the major banks continues to grow and they are more willing to look at products being offered by alternative lenders.

Home values across all states had peaked in 2010 but have now commenced a decline. There is little chance of this trend reversing in the immediate future. According to John Symond, managing director of Aussie Home Loans – the volumes of new home loans processed by Aussie have dropped by 20%  since the beginning of this year.

He said Aussie had kept its 5 per cent share of the market and, until December last year, usually settled $1 billion worth of new home loans a month.

Most mortgage brokers will agree that there has been a significant decline in the number of loans written since the beginning of 2011.

Home values are generally declining throughout the country with the value range particularly affected being in the $700,000 – $800,000 price bracket.

John Symond believes that our housing market is past the peak of the cycle and will probably continue to soften over the next few months.

“The cheaper prices close to the city – prices up to $600,000 or $700,000 – are still quite good because you’ve got first home buyers and small investors competing for those properties.”

He said competition between mortgage brokers had not escalated despite a host of post-global financial crisis mergers and acquisitions in the sector, making the mortgage industry more concentrated.

According to Mortgage Brokers, First Home Buyers are very much informed they want to speak to someone who will be able to assist in exploring their finance options and help the choose a home loan that suits best. First Home Buyers today are far more savy than they were a decade ago. They are prepare to take on extra debt if the home loan makes sense.

Many have now assessed that they property market has slowed down and prices are leveling out. Consequently first home buyers are taking their time before making a commitment.

Brokers are noticing that First Home Buyers spend a lot of time online researching lenders and home loans before actually approaching anyone for assistance.

First home buyers use a mortgage broker for a lot more than the best home loan rate.

They know what the best rate out there is. They come to brokers for professional assistance and guidance.

There is little room in the market today for transactional brokers. Advice is the way of the future.

ASIC has issued a warning to Mortgage Brokers giving borrowers financial advise.

While many mortgage  brokers may be tempted to expand revenue opportunities and offer a more comprehensive financial service, they should be careful not to cross the line between assisting a borrower with home loans and actually advising them on investment or what to do with their money.

Financial planning requires different licenses through ASIC to Mortgage Broking. Home loan advice is fine but beyond that they should be referring clients to a professional Financial Adviser.

ASIC has already issued a warning to mortgage brokers not to cross the line into financial planning unless their business is appropriately licensed to do so.

To this end a number of mortgage brokers decide to hold an AFSL as well as an ACL in order to capitalise on opportunities in financial planning.

A study completed by Genworth Financial is showing that Home buyers do not wish to take on excessive levels of debt, preferring to keep their home loans to 80% whenever possible. It appears that only 28% of potential home buyers are comfortable to take on a home loan greater than 80% of the purchase price. This figure was 38% – only six months ago.

A combination of increasing interest rates, a decline in property prices as well as a spate of natural disasters has made borrowers feel that they may be better off to save rather than purchase right now.

Home buyers are always more prepared to take on a greater debt in a climate of escalating property prices. Such a climate makes them see that if they do not commit today they may be paying more for the same house tomorrow. However when prices begin to stagnate there is little incentive to rush into home ownership. People hold on to their money and wait.

According to recent research, The new generation of borrowers are looking for a flexible home loan with many features rather than a basic home loan which their parent were quite satisfied with.

Mark McCrindle, director of McCrindle Research and expert on generational demographics, has reports that the young borrowers of today are only interested in highly flexible home loans that meet the needs of the modern Australian family.

Home loans of today need to take into account borrower expectations.

McCrindle pointed out the younger borrowers, particularly those in Gen Y, tend to be far more upwardly mobile than their predecessors. The length of time that home owners on average remain in their property before moving on is now only five years. In the past this was 7 years. Clearly the borrowers of today may be more interested in a home loan that will grow with them and continue to meet their changing needs over time.

Borrowers are looking for multiple loan splits, repayment schedule flexibility as well as loan portability. Generation Y home owners tend to take more holidays and have greater lifestyle expenses. Being able to cater for all of these out of their home loan will help lenders win their business.

Generation Y borrowers are also more likely to consider property investment than did their parents. Home loans that mortgage brokers and lenders offer to these borrowers need to also cater for the prospect of future investment.

A number of lenders have now spoken out about the future for Mortgage Brokers under the new landscape of Home Loans with no exit fees

Most lenders are saying that given the banning of Home Loan Exit fees, legislated to start from 1st July this year, they will be forced to introduce some form of broker commission claw-backs. It is not possible to continue to offer low rates to the borrower, pay the Mortgage Broker for introducing the borrower’s business and then allow the borrower to refinance their mortgage at any time without at least recouping partially the commissions paid to the brokers for the loan.

Homeloans ltd for example, have said that they will be reviewing their broker commission structures to introduce some element of claw-backs. The lenders will also offer mortgage brokers commission alternatives where no clawback is applicable.

Mortgage Brokers will need to learn to survive under the new regime given that from July this year it will be illegal for any lender to offer home loans with deferred establishment fees.