Mort­gage Loans – Aus­tralia

The mort­gage loan in­dus­try in Aus­tralia has been see­ing neg­li­gi­ble growth:

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The mort­gage mar­ket in Aus­tralia has been see­ing hard times. Credit growth in the sec­tor has been neg­li­gi­ble and over the whole of 2018, credit for prop­erty pur­chases dipped to 4%, the weak­est re­sult on record. Loans ex­tended for prop­erty in­vest­ment have fallen sharply over the past year. Credit for owner-oc­cu­pier prop­erty pur­chases also re­mained weak and the an­nual in­crease was the smallest since Septem­ber 2015. Experts at­tribute sev­eral rea­sons for the pro­nounced slow­down, the main ones be­ing a higher pro­por­tion of bor­row­ers with amor­tiz­ing loans, re­duced prop­erty turnover and weak de­mand given on­go­ing de­clines in home prices.

An S&P Global Rat­ings re­port re­cently said the Aus­tralian res­i­den­tial mort­gage­backed se­cu­ri­ties (RMBS) sec­tor, which so far has been rel­a­tively re­silient to pres­sure, with mort­gage ar­rears re­main­ing low and rat­ings per­for­mance sta­ble, is now fac­ing el­e­vated risk than it was 12 months ago. “Along­side, high house­hold debt and low wage growth are emerg­ing risks such as lower sea­son­ing levels in new trans­ac­tions and i ncreas­ing com­pe­ti­tion. Dig­i­tal dis­rup­tion is set to change the com­pet­i­tive land­scape in Aus­tralia, with com­pre­hen­sive credit re­port­ing (CCR) and Open Bank­ing on the doorstep. Stake­holder ex­pec­ta­tions are also al­ter­ing credit pro­files, with reg­u­la­tors now the dom­i­nant force shap­ing underwriti­ng de­ci­sions. The RMBS sec­tor is well placed to weather dis­rup­tion and eco­nomic change, but there is no room for com­pla­cency,” says the re­port.

VAR­I­OUS TYPES OF LOANS

For most peo­ple in Aus­tralia, buy­ing a home will not be pos­si­ble with­out help from banks and home loan providers. Even those who in­vest in hous­ing for in­vest­ment pur­poses de­pend on banks. So, Aus­tralian mort­gage mar­ket has a va­ri­ety of loan providers to the ex­tent that home buy­ers have hard time pick­ing up the best. The dif­fer­ent types of loans that are avail­able for home buy­ers in the coun­try are:

Vari­able Rate Loans, which rely on the Re­serve Bank of Aus­tralia’s ever-chang­ing cash rates, and the sub­se­quent fluc­tu­a­tion of in­ter­est rates.

Fixed Rate Loans, which lock in the in­ter­est rate for a pe­riod of 1-5 years, gen­er­ally at a rate above the cur­rent vari­able.

In­ter­est Only Loans, where one pays for the in­ter­est only, mi­nus the prin­ci­pal – for the mean­time.

Guar­an­tor Loans where one can ask a rel­a­tive to be the guar­an­tor and use a por­tion of his home as a se­cu­rity blan­ket for the mort­gage.

Low Doc Loans are meant f or free­lancers, busi­ness own­ers, or self­em­ployed peo­ple who don’t have some of stan­dard papers.

Line of Credit Loans are meant for ren­o­va­tions to houses. These loans are also known as ‘home eq­uity loans’.

PUSH FROM GOVT

If a per­son in Aus­tralia is buy­ing a home for the first time, he is el­i­gi­ble for the First Home Owner Grant. This in­cludes mi­grants with per­ma­nent res­i­dence who have al­ready owned a house else­where. The ap­pli­cant is paid the First Home Owner Grant di­rectly. How­ever, the grant is not avail­able for land pur­chases. In most states, there are house price caps on grants and there may be fur­ther restric­tions such as the prop­erty be­ing your pri­mary home.

Re­verse mort­gages are also pop­u­lar in the coun­try. There is pro­vi­sion for all cit­i­zens over 66 years of age to take a re­verse mort­gage. But, the reg­u­la­tor, Aus­tralian Se­cu­ri­ties and In­vest­ments Com­mis­sion did some in­ves­ti­ga­tions and found that the lenders were fail­ing to prop­erly ed­u­cate con­sumers about the risks of the loan. Just 5 banks orig­i­nated 99% of all re­verse mort­gages in the last 2 years but 2 of these banks have stopped of­fer­ing re­verse mort­gages.

IN­TER­EST RATES

The in­ter­est rates for home mort­gages are com­pet­i­tive. The Aus­tralian Pru­den­tial Reg­u­la­tion Author­ity has al­lowed lenders to change the way they as­sess cus­tomers’ abil­ity to meet re­pay­ments and set their own min­i­mum in­ter­est rate floor and make their calculatio­ns us­ing a 2.5% buf­fer. That means bor­row­ers on a typ­i­cal 4% mort­gage rate can ex­pect to be as­sessed at 6.25% rather than 7.25%, en­abling them to im­me­di­ately se­cure larger loans.

Some of the lead­ing play­ers in the mort­gage loan seg­ment in Aus­tralia are: loans.com, Athena, UBank, Mac­quarie, Newcastle Per­ma­nent, TicToc, Homes­tar, Her­itage Bank, Hunter United and HSBC

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