Mortgage Loans, Home Loans, Bad Credit Home Loans

As more lenders are starting to introduce 95% home loans many are beginning to wonder whether we will be back to no deposit home loans before too long.  Weren’t such loans the reason for the collapse of the US property market?  If so, then why are we slowly moving back to the same.

Paul Caputo, the acting CEO of Genworth does not believe that either Genworth or the industry are likely to move back to 100 per cent LVR anytime in the near future.

“One thing we learnt from the GFC was that borrowers perform better when they have some level of savings. Their behaviour is very different to those that have no savings at all. In this respect, I don’t think we are going to see the industry move back to 100 per cent LVRs in the near future,” Mr Caputo said.

Not everyone in the Australian Finance industry believes that high lvr mortgages are a good idea.

Speaking at the JP Morgan and Fujitsu Australia Mortgage Industry Report media briefing yesterday, Firstfolio chief executive Mark Forsyth said while the industry is wary of moving back into the 100 per cent LVR space, there is always going to be one lender that wants to “ruffle some feathers”.

But even if lenders do decide to move back into the no-deposit home loan space as we had previously, qualifying for such a loan would be next to impossible and it would be little more than a marketing ploy to attract home loan applicants.

“Adelaide Bank announced it will reintroduce lending up to 95 per cent LVR, but each borrower has to meet a lot of requirements before they are entitled to the higher LVR,” he said.

Last month, Adelaide Bank announced that the new loan to value ratio would only be available to owner occupiers via the bank’s third party channel and mortgage managers.

According to a survey of Australian Mortgage Holders, majority believe that interest rates will increase at least one more time this year.

Over three quarters of  borrowers believe rates will go up, the study shows, and 45 per cent are concerned that a rate rise would significantly affect the household budget.

The survey results are certainly indicative of the presence of mortgage stress amongst mortgage holders. It suggests one in five householders with a mortgage would need to cut their grocery bills if rates were to go up by half a percentage point.

The poll was conducted by Beat Home Loans.

The results of the poll are a concern given a very good chance that lenders may be looking to lift interest rates outside of increases by the RBA.

While, analysts widely expect the Reserve Bank board will not change the official rate when it meets tomorrow and will keep it on hold until November, the Beat Home Loans survey found 37 per cent of home loan customers expect mortgage rates to climb by 50 basis points, or half a percentage point, by the end of the year.

A further one in four believe rates will soar 100 basis points – an increase that would add about $200 a month to the repayment on a typical $300,000 mortgage.

One in three said they would most likely cut spending on clothes if interest rates climbed by half a percentage point.

Beat Home Loans general manager Kelly Humphreys said the figures showed home loan customers were “already at the boundaries of their ability to service loans“.

“We’re not talking about a luxury item here. We’re talking about everyday living – putting a meal on the table,” Ms Humphreys said.

“We’re coming off the back of a number of years now at historically low interest rates so borrowers who have entered into a loan recently are only used to those really low rates.”

As a consequence, the higher interest rate environment had the potential to have a more significant effect on consumers and their budgets than ever before, she said.

Reserve Bank data shows the average standard variable rate fell to its lowest level in almost 40 years during the global financial crisis as the central bank aggressively cut the official cash rate.

Since then, increases in the base rate – coupled with extra mortgage rate increases by some banks – have seen the average standard variable rate bounce from 5.75 per cent in May last year to 7.4 per cent now.

Of home loan customers aged 25 to 34, around 20% spend over half of their income on mortgage repayments.

About 15 per cent of home loan customers also said they planned to by an appliance such as a refrigerator or washing machine over the next year, and 13 per cent expected to buy a new car but two in five said they would change their mind about on those purchases if rates rose 50 basis points.

Homeloans Ltd has announced an offer to low doc mortgage applicants.  The funder will cover the cost of Lender’s Mortgage Insurance (LMI) on its Ultra range of lo doc loans on LVRs up to 70 per cent.

Tony Carn, the general for third party sales at Homeloans  has told The Adviser that borrowers would not be charged a loading on their interest rate for taking up the offer.

“Our Homeloans Ultra Low Doc rate is already very competitive at 7.24 per cent, and we’re now providing additional value by covering the cost of LMI.  On a $600,000 loan, a customer could save $6,500 in LMI costs,” Mr Carn said.

The announcement follows Homeloans decision to increase its lending up to 95 per cent LVR.

Homeloans Ltd remains committed to providing innovative and competitive loan solutions to the Australian borrower.

“Funding for the low doc market is opening up once again, which gives us the perfect opportunity to ease our lending criteria in this area,” he said.

With the introduction of credit licensing in Australia some experts predicted that the Low Doc market will progressively disappear.  Instead this segment of the market is expanding the products on offer and is continuing to evolve with better deals for the consumer.

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.

First Home Buyers are likely to line up for a new home loan offer by the Yellow Brick Road, introduced by Mark Bouris the founder of Wizard Home Loans.  The new mortgage product is specifically for the first home buyers market segment. This loan will enables first time borrowers to bypass the genuine savings requirements.

The new First Step home loan, introduced today, allows first time buyers to source a home loan deposit from a range of sources including family gifts, an inheritance or a tax return.

The chairman of Yellow Brick Road, Mark Bouris, said the major banks’ savings requirements were making home loans very prohibitive to the vast numbers of First Home Buyers.

“The big banks often require a borrower to show that their deposit is the result of a savings plan, which can make it much harder for people to buy their first home,” he said.

Saving histories in their own right are not a good indicator of a borrower’s ability to save and meet repayments. People’s circumstances and choice made do change over time.

“More important factors are their income and their credit history, not the origin of their deposit,” he said.

The banks are insisting on a demonstration of a savings history for their own reasons. The main  reason being that such a policy is helping the banks to collect a large amount of depositor funds.

Yellow Brick Road will offer the First Step home loan via its partnership with Gateway Credit Union which currently administers its home loan range launched in December last year.

The product will offer a LVR of up to 95 per cent with a variable interest rate of 6.59 per cent.

According to George Livermore, group executive of Core Logic, Australia is not facing a house price bubble, rather a severe housing affordability crisis.

George Livermore said that the US property market faced a burst bubble during the GFC when mortgage holders preferred to default on their home loans because of the dip in unemployment and the non-recourse mortgage trend.

“Some markets, like in Arizona, Florida and California, suffered a big price drop because underlying demand was never really there, so prices fell to where the underlying demand was,” he said.

US had gone through a decade of overbuilding, over four million too many houses and unfortunately it’s going to take some time to correctly match up demand with supply.

Unlike the US market, Mr Livermore said Australia’s issue was more about average Australians being unable to buy into the property market because of a lack of supply.

“Affordability is not the same issue as a housing bubble,” he said.

“I hear talk about a housing bubble but I don’t think Australia is facing one.

“The Australian government needs to address the issue of affordability through further supply,” he said

If the supply issue is addressed then the current price pressure on housing will be alleviated.

As part of a recent trend by a number of second tier lenders to up the lvrs available on their mortgages – Provident Capital has brought out a 95% home loan for owner occupiers.

The home loan also includes LMI fee capitalisation and a line of credit secured Visa facility with a limit of up to $20,000. There is also an unsecured Visa facility of $10,000 available to all borrowers.

Steve Sampson, Provident Capital’s head of lending distribution said that the move “demonstrates Provident Capital’s commitment to our partners in the broker market, and helps homebuyers reach their dream of home-ownership”.

Provident have a point of difference in the market place.  They are offering conditional approval within 48 hours. Should this take them longer, the borrower will receive $100 in compensation.

Provident is the latest in a rash of lenders to launch a high-LVR owner-occupier mortgage this week: others include Adelaide Bank, National Mortgage Company, Iden Group and Homeloans.

The ever-increasing home values and the growing costs of borrowing have generated a housing affordability decline by more than 30 per cent over the past year.

According to the latest HIA-CBA Housing Affordability Report, affordability declined by 9.1 per cent in the June quarter across all Australian capital cities and 6.7 per cent in regional areas.

The index in question calculates home affordability by combining interest rates, household incomes and home prices . The results came in 32% down on same time last year.

“As housing affordability slips away, so too does the chance for many Australians to realise their dream of owning a home,” HIA chief economist Harley Dale commented yesterday.

It is imperative that the Federal Government makes this issue a priority.

“There has been a marked lack of commitment and attention in the current federal election campaign given to  the significant hurdles prospective First Home Buyers face. Helping Australians afford a roof over their head is surely a fundamental responsibility of government,” Harley Dale added.

According to the HIA-CBA Index, the largest drops in housing affordability were recorded in Sydney (-9.1 per cent), Regional Victoria (-9.0 per cent), Regional Tasmania (-8.8 per cent), and Adelaide (-8.7 per cent). “Key federal policy priorities need to include a program to reduce new housing costs such as inequitable taxes and charges, better planning approvals systems, and a dedicated federal housing and development ministry to coordinate policy across all sectors and levels of government,” Mr Dale said. The systems currently in place are slow and cumbersome.  They do no encourage further development and the creation of additional housing at affordable prices.

National Mortgage Company will now offer its loan products through the Elders Home Loans Group, after the diversified financial services group elected to add NMC to its panel of providers.

In a statement issued today National Mortgage Company said its home loans would be available via the Elders Group as of Monday 23 August.

Fernando Lemos, National Mortgage Company head of sales, said the group was “hugely excited” about the move and would be proud to be part of the Elders Home Loans Group.

“We see the synergy of both our businesses being one of quality and control and we see it as a natural fit,” he said.

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.