Mortgage Loans, Home Loans, Bad Credit Home Loans

According to a report in the Financial Review the big four are expecting to see a drop in demand for both mortgages and business loans over the next half a year.

Information provided by the Australian Bureau of Statistics suggests that demand for home loans had increased by just 0.5 per cent in August 2010, indicative of a drop in demand from home buyers as well as investors.

Banks are also worried about the erosion of profit margins in finance and how their profitability will be affected by a drop in demand in the coming months.

Margins are being squeezed because banks are being forced to pay higher interest on savings accounts.

In addition, the cost of funds is ever increasing. It seems that home loan funders will be looking to recoup their costs by interest rate increases irrespective of any decisions by the RBA.  At this stage the market is confident that the RBA will not announce any changes to the interest rates in their meeting next week.

MFAA have come out in support of Deferred Establishment Fees claiming that their presence in the Mortgage Market actually promotes competition between lenders with the result being lower interest rates for the borrowers.

Deferred Establishment Fees are a mechanism that facilitate the non-bank sector to offer the most competitive interest rates possible to borrowers.

“Non-bank lenders provide consumers a strong alternative in the lending market, in many cases offering very competitive interest rates,” MFAA chief executive officer Mr Phil Naylor said yesterday.

Unfortunately if non bank lenders were required to remove Deferred Establishment Fess their interest rates would no longer be attractive to the consumer and they would be forced out of business thus perpetuation a ‘monopoly-like’ environment.

Recent media reports suggest that The Bendigo and Adelaide Bank have weathered the financial crisis quite well and have come out with a report of healthy earnings.

All this is despite the fact that smaller banks are continuing to be plagued by lack of access to wholesale funding markets on competitive terms.

The Bendigo bank has done very well in part due to its ability to grow its deposit base from an already very healthy 84 per cent of its funding base to 88 per cent while also improving its net interest margin.

Strategically, that ability to improve margins while growing its loan book by about 11 per cent, with the the most significant growth coming from home loans, is the key. This ability allowed the bank to turn what could have been a competitive disadvantage – the lack of access to wholesale funding in the context of a big bank battle for retail deposits – into a competitive advantage.

The big banks have been experiencing margin pressures because their funding costs have been edging up but they have been largely unable, because of the politics of home loans, to pass on the full impact of the higher costs to borrowers. They have, of course, been able to use their ability to re-price loans to business as something of a safety valve.

Bendigo has been able to grow its home loan and non-mortgage books above system growth while maintaining its share of deposits.

After the GFC,the major banks have started to move away from commercial loans into residential mortgages.

That is starting to change – there is renewed interest among the majors, and increasing competition, in lending to business – but the reality for Bendigo, Suncorp and Bank of Queensland is that their experience during the crisis was a reminder that their competitive advantage and their security lies in behaving and lending more like building societies than major banks.

According to a new report by ING Direct, almost one in two Australian home owners are ahead in their mortgage repayments.
It seems that despite higher interest rates, 48 per cent of mortgage holders are making extra repayments on their home loans, up from 46 per cent in the first quarter of this year.
The new welfare index, which assesses the financial well being of households on six different financial fronts, also found Australians are very comfortable with their long term debt positions.
Average comfort levels for long term debt commitments (home and personal loans) were 6.5 out of a possible 7, compared to short term debt (credit cards) at 5.8.
In contrast, when it comes to households’ long term assets and ability to meet bills, comfort sits at just 3.9 and 4 per cent respectively.

According to recent data from AFG, First Home Buyers appear to be making a return to the property market.
Based on the AFG Mortgage Index released today, in June, first home buyers had made up 9.5% of the market, whereas in July the FHB sector had grown to 11.1%.
The volume of first home buyer home loans has also increased from $192 million to $204 million.
While the overall mortgage activity is down month by month since earlier in 2010,  the number of new mortgages fell by 15.1 per cent in July.
AFG general manager, sales and operations, Mark Hewitt said six interest rate rises and an environment of economic uncertainty slowed down the market significantly during the first half of the year.
Other contributing factors to reduction in home loan activity were cold weather, school holidays and the calling of the elections.

New figures from APRA indicate that the Australian Banks are taking away home loan business form non-bank lenders.

According to statistics released on Friday, over 76% of the overall amount outstanding in home loans as at the end of June is held by banks.

Additionally, more than half of all outstanding home loans were held by either CBA or Westpac. The share of this business currently with non-bank lenders and credit unions is only 8.60 per cent of all outstanding loans in June 2010 – a drop from 10.4 per cent in June 2009.

Mortgage brokers and others working in the industry have seen this coming. There has been a clear domination from the banks for some time. One of the biggest problems for non bank lenders is access to funding, this is less of a problem for banks.

While the figures showed CBA and Westpac had a clear domination of the market, they also show a swing in business to ANZ and NAB which would be further evident in the next round of figures.

Brokers are trying to ensure that borrowers are offered opportunities to borrow from a wider spectrum of lenders.

According to Mortgage Insurer QBE, organised crime gangs are targeting recent migrants and the elderly, by taking out mortgages against their properties without their knowledge.

QBE LMI reports that mortgage fraud is costing the finance sector millions of dollars every year.

Criminal rings defraud banks of millions of dollars by forming alliances with real estate agents, valuers, developers, accountants and loan originators.

They simply concentrate on stealing identity documents which allow them to impersonate property owners and borrow against their property.

In most cases, victims are unaware they have been targeted until they are contacted by a bank looking to collect loan repayments.

People need to be aware of the dangers of this crime and be very vigilant with where and who they give access to their personal information.

When mortgage fraud occurs it is generally the lender not the borrower who pays for it, but it raises costs throughout the industry, which flow through to customers.

New migrants and the elderly are less aware of the rules in the finance industry and can be easy victims for crime gangs.

Australian borrowers should not take it for granted that there will be no interest rate increases during the federal election campaign. According to the RBA the economic indicators at hand will be assessed and if the economic data suggests it’s prudent to do so rates could be moved in early August.

The RBA governor Glenn Stevens, said the central bank’s board would consider all data available and act accordingly.

People should not assume that rates will remain  on hold in August because of the elections, Glenn Stevens has said.
The next RBA meeting will be in the midst of the current election campaign and could potentially impact voter perception of the current government,

During the previous elections in November 2007, the central bank raised the cash rate by 25 basis points to 6.75 per cent.

Mr Stevens said the level of household debt had risen markedly, from about 50 per cent to 60 per cent in the 1990s to the equivalent of 150 per cent now, but that rate of growth was unlikely to continue.

”That is not especially out of line with a number of developed countries,” he said.

”I would be very surprised if it keeps rising at that pace in the future and indeed, as I have said before, there is now a good deal more caution on the part of households about their saving environment behaviour.

”Household credit to income is probably still edging up at the moment, but much more slowly than it was.”