Australias mortgage prisoners

Too big to fail, or are they going to leave this in the investors laps?


Australia's "Mortgage Prisoners" Totally Screwed As Refi Rejections Soar

 

I personally think it's because credit has been too easy to obtain pre-APRA, and literally everyone is jumping on the IO loans bandwagon without having a second thought.

Now the good tune has stopped, IO extension being hammered, assessment minimum HEM (living expenses) in place, on top of IO period coming to an end - all these factors piling up so now we're starting to see the impact of such.

Sure, people may not be able to refi out but that doesn't mean they cannot review and cut their living expenses to afford paying down the mortgage. It'll be painful and I have a couple of clients who is in that situation, but you'll be amazed what people would do to keep the roof over their head.

Heavily geared investors however, if they haven't had a plan in place to mitigate for the IO cliff then it'll be a bigger problem. But worse case they'll just have to sell the portfolio down until it's to a mangeable situation. Not ideal, and shows how important it is to always have a good contingency and plan for these foreseeable events in the post-APRA days.

Cheers,
David

 

Shows how important it is to start taking cash flow and debt reduction far more seriously ...

 

"Looking to refinance your Australian property you wish you didn't buy?"

Where is the evidence that people who want a better deal on a loan wish they didn't buy the property? Where is the evidence they will suffer financial distress because the refi was rejected?

For example, I could try to refi for a lower rate. Right now I would very likely be rejected. That does not mean I wish I didn't buy the property and I would not suffer any financial distress from being rejected.

Try posting an article with facts to discuss

 

I think these facts are worthy of discussion...

The total number of monthly rejections went from 2,031 in December 2017 to 30,986 in July 2018, a mere 1426% increase.

The rejection rate itself looks much better percentage-wise. It's now 40%, up from 5% a year ago.

 

Recently i have seen two clients wanting to refinance because their owner occupied 10 yr IO loan has come to an end and repayment has jack up to $10k a month.......unfortunately nothing I can do as their financial situation also deteriorated since 10 yrs ago.....

 

Yeah know what ya mean.....i certainly looks the refi rejection rate is better than @datto ability to get a date in Mosman thevrejection rate was 100% ....but the he started his local haunts in the Druie and acceptance rate went to 100%

Just goes to show the importance of knowing where to get finance and an exit strategy. Just dont jump off the second floor balcony during the night like datto

 

I read a very similar article earlier in the week, about banks' bait advertising low interest rates to encourage applications for refinances. Perhaps the higher number of rejections was because of an unusually high number of applications following the ad campaign.

 

The data source for these rejection 'facts'?

"An omnibus phone survey that Mr North commissioned and his analysis of data from investment bank UBS"

A couple of the big 4 have already said their rejection rates aren't even close to 40% (could also be bending the truth!)

Lies, damn lies and then statistics.

Even if refinance rejection rates are up, that doesn't directly translate that all those are in mortgage stress as Mr North suggests.

 

So you woud believe the Big 4....instead?

The rejection rates are infact close to 40%. Because 1 a lot of brokers are still lodging loan documentation like the past. Second....due to the workloads of the Big 4 if the loan is marginal they are denying it. The Royal Commission has certainly stuffed it for a lot of people.

 

Read my post again please @sash, likely the banks also bending the truth.

How have you determined close to 40% is a fact? What are you basing that on?
How have you determined brokers are still lodging the same volumes of applications as pervious?
How do you know banks loan departments are overworked, this being the cause to reject lineball applications? (Big4 I worked at vast majority were electronically assessed)

No denying finance is now harder to get for many, whether it's 20, 40 or 60% rejections will always be grey to measure.
I just don't buy the original researchers methods (phone survey) to support their conclusion (every refi is related to mortgage stress).

 

It has gotten better....just in the last few weeks as brokers have become smarted

But the Royal Commission stuffed it...there is evidence to show that Credit Manager took a hard line for a while because they worried about their jobs.

 

@sash The last time I was in Mosman I saw a house in Raglan St I liked. I went to the agent and got rejected then I got rejected by the office assistant on the way out (thought I'd try). I then went to the zoo. I didn't push my luck there.

 

I think a big danger is the impact the mortgage prisoner phenomenon might have on competition. Banks know a big chunk of their investment loan book does not have the ability to shift elsewhere regardless of how much they jack up rates. The temptation to keep releasing new competitive products for borrowers that meet serviceability and keep highly uncompetitive rates for legacy products with trapped customers will be strong.

 

Do you mean they can't refinance to 30 year P&I?

 

Yes/no. It's not a life sentence. Perhaps I am stuck with a lender now. My salary increases every year, my rental income in increasing and my loans are on P&I, so I'm paying diwn debt. At some point I am not stuck with my lender and csn move. In my case maybe it will take 2 years, some might be quicker, some might be longer. I've been a so called "mortgage prisoner" before. It was no big deal

 

I did hear the comment from some pollie? that punters should change banks and shop around for the best deal If they didn't like the banks cranking up their rates - post-APRA this is very unlikely (hmm, has that got something to so with the 40% rejection rate?)

These guys use someone with a signwritten ute to cut their grass, the VC Wagon doesn't make the grade in those parts. No one appreciates the hum of the old red block with a massive 2850cc displacement amplified by a 350 Holley.

 

They can't refinance at all because the minimum servicing standard has changed so much that no matter how creative you are it's just not going to work.