1985 vs 2016

Discussion in 'Property Market Economics' started by MJS1034, 4th May, 2016.

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  1. Azazel

    Azazel Well-Known Member

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    I reckon you'd be surprised. Maybe they didn't buy it today, but there are plenty of people plugging away at mortgages earning low incomes.
     
  2. wylie

    wylie Moderator Staff Member

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    You seem to have mis-read. We did not "come in" with $50k. We went guarantor to a limit of $50k to avoid him paying LMI. We didn't tip in one dollar to this purchase.

    I also said "I believe they looked at the rental income". I have no idea whether they did, but with a lease in place, that is possible, yes? I doubt any bank would commit fraud to help a 21 year old, first borrowing, with no reason to do so, do you?

    And for goodness sake, those online calculators are crap.

    So you can stand by what you believe, and I'll stand by the facts.
     
    Last edited: 5th May, 2016
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  3. wylie

    wylie Moderator Staff Member

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    @emza I've just searched my emails for the loan that another son was looking at in July last year. Obviously lending may have tightened since July last year, but this is for a loan for an IP for someone on $40k salary. Do you believe me now?

    "As we discussed I looked at two possible options from a serviceability point of view using an income of $40,000 pa for (son's name):-

    Property 1 - House property purchase price $500,000

    Using the serviceability rates as at today's date and allowing for rental income of $465.00 per week the current maximum amount that could be approved would be $420,000, which would require a deposit of $80,000.


    Property 1 - Unit property purchase price $350,000

    Using the serviceability rates as at today's date and allowing for rental income of $350.00 per week (son's name) would comfortably meet servicing requirements for a loan of $280,000.

    This is only very general information I have not taken into account mortgage insurance and other purchase costs like stamp duty and legal fees but I think it will give you a good idea of what may be available."
     
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  4. wylie

    wylie Moderator Staff Member

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    And further to that, in about August last year (not sure when lending tightened up), I managed to get myself a $450k loan to buy a $700k property. I had to fight to get that loan, and was told a few times it was not possible.

    I have assets (in hubby's name for tax purposes), plus a PPOR in both names, but with only PPT income of $20k I really struggled to get the loan, even with the rental income covering the IO repayments. It wasn't easy and it is with a second tier lender, low doc style, so the rate is higher than I like, but if you really, really want something badly enough, you find a way.

    They would not consider any assets held jointly or in hubby's name and only looked at the house I was purchasing, the rent it brought in plus my PPT income of $20k. I still was able to borrow $450k.
     
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  5. Lacrim

    Lacrim Well-Known Member

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    Even though I have massive skin in the game, it's hard to refute the fact that housing, pound for pound, is proportionally more expensive based upon historical metrics.

    I think the primary driver is not double incomes but low interest rates and ease of funding. To be fair, rates have been low-ish for almost 20 yrs! And that's precisely when the charts started skewing up and ratios moving away from their historical means.
     
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  6. joel

    joel Well-Known Member

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    LMI is a substantial cost when you have a low deposit. If my parents went guarantor to $50k for me I would have bought a much, much nicer house.
     
  7. wylie

    wylie Moderator Staff Member

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    Absolutely. But in the case of our son, it meant him not being able to anything, or being able to buy a cheap and crappy unit, but at least it is HIS cheap and crappy unit (well... mostly it still belongs to the bank, but he is gaining equity slowly as it increases in value).

    So our offer to go guarantor was very appreciated, even though it cost us nothing.
     
    Last edited: 5th May, 2016
  8. Angel

    Angel Well-Known Member

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    This information demonstrates why it is more difficult for PPOR FHBs to get their first home. Investors get lending "privileges" because we already have equity in our other properties and the bank takes rental income into consideration when purchasing an investment. We then get penalised in other ways, such as having to pay double the amount of stamp duty, higher bank interest rates and higher council rates. I can see why FHBs are not happy. I am yet to see a media piece discussing these factors. Negative gearing isn't the huge barrier to home ownership that the media makes it out to be but rather lending criteria.
     
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  9. wylie

    wylie Moderator Staff Member

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    I got no priveleges due to holding other assets though. And I am certainly paying high interest at 5.9%. But I'll work on that.

    For my loan the bank ignored "our" assets held in hubby's name. My application stood completely on its own and I had to stump up $250k plus duty of about $25k. I was really looked at like a FHB. Perhaps if this loan was in hubby's name the bank would have taken "his" assets into account.

    My 20 year old son could have borrowed nearly as much as I could (see my other post). So with only $20k income and no notice taken of my other assets other than security over the house I was purchasing (different bank to that holding our titles), I couldn't have bought this house unless it was an IP.

    Actually, I was initially applying for 80% lend. They says yes to this then reduced lend to $500k and then dropped to $450k. I had to find the rest.
     
  10. Steven Ryan

    Steven Ryan Well-Known Member

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    I'm not quite understanding "substantial" :)

    2-3% of the purchase price, tops, and it's generally capitalised on to the loan so it's not an out of pocket cost – the effective cost to you is paying 2-3% more interest each year on your loan.
     
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  11. wylie

    wylie Moderator Staff Member

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    I know at the time, having to pay LMI would have meant our son not being able to buy unless we helped him with some cash. He just scraped in to buy and actually fixed his rate to ensure it didn't go up. Of course, rates fell, but he knew that could happen and fixed because had they risen, he would have had trouble meeting payments.
     
  12. emza

    emza Well-Known Member

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    Aren't we talking PPOR, not investment properties?

    Someone buying a $294K property for PPOR on $38K wage is approaching using 50% of after tax pay to service the mortgage. This is putting aside trying to save even a 10% deposit on that wage and ignoring stamp duty, living costs, repairs, rates, car rego and so on.

    Without family help and using the rental income of the property being counted as borrower income (for a PPOR), they have no hope.

    The online calculators aren't totally accurate, but they aren't out by $150K either. If a broker can take an application from being eligible for $136K up to $265K then I'd suggest there is something questionable going on there.

    Aren't there rules about what percentage of after tax pay is to be used to pay a mortgage?

    A normal borrower isn't going to get much more than $220K and that's with ridiculously low living expenses. They're still a good $80K away from that $300K house.

    So then somehow they get that loan, they're paying 50% of their take home to the mortgage and they're praying interest rates don't wobble because they'll be wiped out.

    It's great your son had you to go guarantor but that's not the reality for many people.
     
    Last edited by a moderator: 6th May, 2016
  13. wylie

    wylie Moderator Staff Member

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    The online calculators actually are waaaaaay out. You don't know until you ask a broker. The calculators are designed IMO to get you to call. They are not accurate at all.

    The broker did not "put down rent income". We specifically asked about this.

    And yes, it is great that we were able to go guarantor, but if not, he had the drive to buy and would have saved madly for another few months or looked at paying LMI. I don't know if he could have bought and afforded to pay LMI but if not, he would have saved more.
     
    Last edited by a moderator: 6th May, 2016
  14. emza

    emza Well-Known Member

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    There is something seriously wrong in the figures though, right? I've been to a broker, I understand how they work and what questions they ask to elicit certain answers. I can do basic maths.

    Who knows, maybe they excluded the rental income and somehow a person on $38K who'd be looking at paying 50%+ of their income to a mortgage got a loan on those terms.

    Sure doesn't sound like prudent lending standards on those terms.

    Putting aside the mortgage calculators, the fact remains that someone on that low wage would be paying close to or more than 50% of their take home pay to service the mortgage and that's on incredibly low rates. Any bank who gives out a loan like that deserves to be hauled up in front of a royal commission.

    I do stand by what I said about people on $38K not being able to buy a house to live in. Perhaps in some tiny country towns it's possible but certainly not anywhere else. The housing cost is too high and the borrowers would have to have rocks in their heads to set up a loan where the borrower is paying 50% of their post-tax wage to service it.

    On the surface of it, none of the financial sums make sense, especially the 50% of take home pay requirement.

    And so it's not personal - let's talk about an imaginary person earning $38K trying to buy a property, rather than your son. This imaginary person simply cannot get the whopping loan required on that income without some serious twisting of lending standards, substantial family help or something else going on. I don't care what broker you go to - turn up with $38K income, no assets, no family and nothing dodgy and you're out of the market entirely.
     
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  15. Hanison

    Hanison Well-Known Member

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    Take home from this is that there is always a way.

    The moment you say it's not possible.

    You're done.
     
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  16. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Application fudging is rife Bank fraud rife, institutions fudge loan applications: economists. As demonstrated in this thread, the responsibility and the liability is diffused and protected. Somehow the applications are approved but no one knows whodunnit:
    • Buyer : Gets the property
    • Guarantor : Transfers wealth to the next generation
    • Broker : Gets the commission
    • Banker : Gets the business and AAA rating for access to low cost of funding
    Most in the lending chain know the answer, but hey !!! what about the client's privacy. That is the reason you see the brokers, investors and banks fighting tooth and nail to avoid RC. What happened to "If you have nothing to hide...."

    Looks like a well oiled machine and parents buying for children is strategy a duly endorsed by our Prime Minister who takes his filial duties very seriously:
    Is Malcolm Turnbull 'soft' on China because of his family connections?.

    The losers are FHBs without rich guarantors, and taxpayers (but that's another story).

    Any reasoning or statistical argument of the current affordability is ridiculed by the mindset brigade and the line of reasoning is:
    • For my (or my parents/grand parents) first property (insert your magnified struggle here)
    • Unwilling to make sacrifices like I did (insert your home cooked meals or public transport examples)
    • Entitlement mentality of current FHBs (Cite FHBs phone/free education/laziness or blame the victim for the current employment statistics). Never mind that the investor himself is claiming the CGT exemption on the x th NGed property.
    • Protected childhood / inadequate education (Insert Carol Dweck/ other gurus that you studied) never mind that FHB probably has a dual degree or studying for a master's qualification.
    Greed and hypocrisy IMHO. Very unlikely that a balanced argument on this topic can be had on this forum given the overwhelming conflict of interest.
     
  17. wylie

    wylie Moderator Staff Member

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    Two things stand out from that reply...

    1. "Rich guarantors". Really? Guarantor to the value of a huge $50k. That makes us rich? Really?

    2. Our son as a FHB has NO degree. What he had is drive and ambition and has watched us (and later helped us) slave over a hot paintbrush to make a house worthy of increasingly fussy renters.

    The rest is just waffle IMHO.
     
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  18. Hanison

    Hanison Well-Known Member

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  19. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    • It's not about any individual. Personalisation of generic remark can be construed as an expression of guilt.
    • Rich is a subjective term. Consider an identical FHB who did not have access to 50,000 from a guarantor and consequently was denied the loan. Is this FHB wrong in classifying the competition as having access to 'rich parents' ? Guarantor loans are a non-trivial issue for FHBs .

    • Reinforces the diversity of FHBs and baseless allegations that FHBs are lazy and unemployment is their fault.
    • Is a hot paintbrush a yardstick of ambition and drive ? FHBs with degrees do not have ambition and drive :confused:. Too many generalizations.
    This was anticipated
     
    Last edited: 6th May, 2016
  20. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Why is it any of your business ?