Mortgage Loans, Home Loans, Bad Credit Home Loans

Mortgage insurer Genworth is looking to introduce a range of changes to the Australian home loan market to drive mortgage growth, including the release of a ‘graduate program’ targeting first homebuyers.

Speaking an PLAN Australia’s national conference in Darwin last week, Genworth CEO Ellie Comerford addressed mortgage brokers saying that Genworth are looking at ways to entice more home buyers into the market including making home loans more affordable to first home buyers who are most exposed to movements in interest rates and property price fluctuations.

It is important to develop strategies and loan products to assist people in purchasing their first homes as well as help them hold on to their homes in times of adversity.

A new key initiative would be to provide backing for struggling first homebuyers, who were now buying homes second latest in the world according to international mortgage trends data.

Genworth are looking at a program for young professionals who are qualified, employed, but that don’t have an established credit history. A ‘graduate home loan programe’, will be offered to such borrowers.

The insurer is also looking at other measures including shared equity loans, bringing back the ‘family pledge’, and even the importation of an ‘accordion’ loan design from India.

“That’s a loan that, as interest rates go up, payments remain the same and the term of the home loan is moved,” she said. “That means people are in a position to pay as they can handle any vagaries of the market”.

Home loans that can be extended for 30-40 years will assist with property affordability.

NAB is certainly the winner in the recent home loan war played out in the media. The bank has reported a significant boost to its cash earnings of 19.2 per cent or $5.5 billion.

NAB is attributing much of its success in the home loan arena to its “breaking up” media campaign.

NAB also recorded a 9 per cent rise in deposits with an additional $7.1 billion banked by customers.

Cash earnings from personal banking jumped 25 per cent and the bank recorded a 12 per rise in earnings from business banking.

Despite the overall demand for loans being down and the currently uncertain economic conditions, the bank increased the value of its consumer loans by 19 per cent to $130.5 billion, and the value of business loans rose by 6.3 per cent to $60.2 billion.

The gains in NAB market share came at the expense of net interest margin, which was flat in the full year at 2.25 per cent.

The increased costs of wholesale funding and strong competition for deposits has made this a very competitive environment for any lender.

Mortgage Brokers believe that most lenders will be more than happy to pass on any rate cut that could be announced by the RBA from their meeting next Tuesday. In fact many believe that lenders could use a rate cut as an excuse to reduce rates even further than the RBA.

In recent months, most home loan providers have entered a period of extreme competitive behavior with respect to fixed home loans.

Lenders desire for home loan market share would push them to pass on any rate cuts made by the RBA.

Brett Coombs from Chase loans agreed and said the banks would see any rate cut by the RBA as an opportunity to move even further on rates.

“The banks have been cutting rates in recent months independent of the RBA and I think this trend would continue if the Reserve Bank did opt to cut the official cash rate.”

There has been some speculation in the media that the Reserve Bank may cut rates as early as November, with the Board becoming increasingly dovish in recent months.

The RBA has maintained its focus on the challenging international financial and economic environments and the impact that uncertainty is having on confidence globally.

According to the Reserve Bank of Australia, costs of home loans have come a little down during 2011.

As households started to save more and spend less, the demand for loans eased and costs of loans began to decline.

“Consequently the interest rates on new home loans are now around 10–15 basis points lower than they were early in the year,” said Mr Battellino to Citi’s annual Australian and New Zealand Investment Conference in Sydney.

While Australia did not go through the kind of extreme fallout of the GFC that America and Europe were subjected to,  consumers quickly became aware of the risk associated with extreme levels of debt and over the past several years Australians started to pay down their debts and commenced saving more and spending less.  The unemployment rate in Australia is currently 5.2 per cent compared to 9.1 per cent in the US and 8.1 per cent in the UK.

Mr Battellino said that, “After a 10–15 year period during which households increased their levels of debt and reduced their rate of saving, they have returned to a more conservative and traditional, pattern of financial behaviour.”

The resulting shift has pushed household credit growth slightly below household incomes, while the savings rate has returned to normal based on historical standards, said Mr Battellino. The wariness is creating headwinds for businesses that rely on healthy spending and borrowing, he said, in the speech entitled “Economic and Financial Developments.”

Banking analysts have been predicting that profits at Australian banks will come under pressure as a central area of business, mortgage lending, slows in growth.

While lower levels of spending as well as lower borrowing are creating a difficult business environment for most industries, this is having a positive impact on costs of home loans.

While low doc home loans are still very much around, the National Credit Code has introduced significant legislative requirements on to the mortgage broker, making the writing of low doc home loans and no doc home loans almost a dangerous business.

While a mortgage broker does not define home loan lending criteria, they are responsible under the new credit legislation to ensure that borrowers they work with are able to afford the home loan they are applying for.

What does seem a little strange, is that lenders are able to introduce home loan products into the market place with minimal income verification requirements. Some lenders are still happy to offer home loans to the self employed borrower with a letter from their accountant and little else, ASIC places responsibility on the mortgage broker to verify the borrower’s financial position beyond lender requirements.

Consequently, the number of mortgage brokers still operation in the low doc home loan field is now significantly smaller than was present only 12 months ago. Low doc home loans and no doc home loans are still available in Australia in 2011. These are not the same loans as in prior years, more information needs to be collected on the borrowers and borrowers with equity but without income will not qualify for a home loan.

A recent survey of workers conducted by the Australian Council of Trade Unions, suggests that costs of housing, both rental and home loans is the biggest concern held by employees who are not in stable jobs.

Men and women are equally worried about housing affordability over the next twelve months, according to the Australian Council of Trade Unions (ACTU) report.

As high as 54 per cent of men and 56 per cent of women surveyed said that they were worried about the escalating costs associated with their home loans as well as their housing rent payments.

“Insecure work makes it harder to purchase your own home, and irregular working hours mean that week to week households can’t be sure they’ll make the rent,” according to Australians for Affordable Housing spokesperson Sarah Toohey said.

Employees who do not know their working hours from one week to the next, are obviously concerned about meeting their financial obligations – the largest of which is the cost of housing.

A separate AHA report reveals that it takes more than eight times the average annual income to buy an average Sydney home, up from 5.6 times in 200.

Since 2005, rents in Australian cities have risen at twice the rate of inflation, according to the report.

Australians for Affordable Housing is a coalition of national housing, welfare and community sector organisations to highlight the problem of housing affordability in Australia.

RBA has issued a warning to the big banks, on the anniversary on the CBA 40 basis point out of cycle home loan rate increase – do not do this again!

RBA assistant governor Guy Debelle signalled yesterday that if the RBA decides to cut rates during cup day, it is important that the home loans of all lenders also reflect the equivalent rate reduction.

It was almost 12 months ago that CBA had moved to increase home loan rates aggressively after the RBA lifted the cash rate last Melbourne Cup Day.

CBA had paid dearly for this and for many months after the bank was affected by negative consumer sentiment with many choosing to refinance their home loans to other lenders.

Economistsbelieve  that a low inflation reading next week could spark a 25 basis point reduction in the official interest rate in November.

In a speech yesterday, Dr Debelle gave Australian banks a clean-bill of health, claiming their funding structures were “more resilient” than in previous years.

The pressures on Australian banks were “considerably” lower than those faced by their European counterparts, he said.

His comments come as new research reveals that customers of the major banks are more satisfied than they have been at any point over the past 15 years.

Refund Home Loans has announced late last week that the business is going into administration

It seems that the company’s creditors had been exerting undue pressure on Refund Home Loans to cover outstanding debts. Administrators called in will make every effort to sell the business to a different player in the industry.

Speaking to The Adviser, a spokesperson from Refund Home Loans said the administrators were currently working to protect the Refund Home Loans business, keep the business trading and secure a buyer for the business.

Several companies have thus far expressed their interest in buying the Refund Home Loans business, but they are just waiting for the administrators to give them the green light,” the spokesperson said. There is also a possibility that the Franchise holders will be allowed to buy out their own business.

However the preferred outcome is to a buyer that would keep the franchisee model intact.

“Right now it is business as usual for our franchisees. If there are any changes, the administrators will let them know in advance.”

According to the communication, up until the end of 2010, all costs for the growth of the company had been met out of cash flow.

At that point, it became apparent that further funding was required and the directors of Refund Home Loans expected to receive further support from the bank. However, the Queensland floods prevented that support being provided and the lack of further funding has left the company in the same position as before.

Whatever the outcome of this administration, SV Partners believes the directors may become bankrupt as a result.

According to the Refund spokesperson, administration of the home loans business will not affect the financial planning and real estate businesses.

In the process of competing for your home loan lenders have opted to increase the LVRs offered on their home loans – borrowers are able to take out home loans up to 95% of the value of their property. After the onset of the GFC, many lenders had tightened their lending criteria only offering home loans to 80% of the property value.

Then slowly the LVRs began to climb higher. Today it seems that 70% of home loan products in the market offer up to 95% LVR, compared to 49% a year ago. With all of the big four offering LVRs up to 90%, and Commonwealth Bank, Westpac and NAB offering 95% LVR products.

There’s an obvious temptation to jump into the market if an institution will lend you 95% of the property’s value. Remember though that you’ll almost certainly have to pay LMI because your deposit is small, and most importantly, remember you now have a much larger debt. Any increase in interest rates, or a reduction in your income, has a much bigger impact because you have a larger mortgage.

According to statistics from the ABS, Australia has seen a small increase in demand for home loans during the month of August.

The figures from the Australian Bureau of Statistics (ABS) indicate that the number of home loans to owner occupiers has increased by 1.2 per cent, while the value is up by 0.6 per cent.

The value of home loans to investors was 1.8 per cent higher during August.

Despite the small increases the levels of home loans taken out today are well below anything we have seen in recent months and even years.

The value of home loans taken out by home owners increased 6.4 per cent from August 2010, equivalent to an additional $876 million per month, but this is more than explained by the rise in refinancing transactions, which are running at about $1 billion higher than a year ago.

Excluding mortgage refinance, the value of new home loans taken out by home owners during August was down 1.5 per cent, or $152 million per month, from August last year.

This seems to confirm that home loan borrowers are still doing all they can to consolidate debts and refinance to a cheaper home loan.