Banks, regulators in crisis talks about what happens in 6 months....

Discussion in 'Property Market Economics' started by Peter2013, 17th May, 2020.

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  1. Peter2013

    Peter2013 Well-Known Member

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    The Commonwealth has many households on life support (JobKeeper).

    Even so, banks have deferred over 424,000 mortgages:
    • ANZ has deferred 105,000 (14%), worth $36 billion.
    • Commonwealth Bank has deferred 144,000 mortgages (12.5%), worth $50 billion.
    • Westpac has deferred 105,000 (9%), worth 36 billion.
    • NAB declined to provide data.
    Now regulators and the banks are in discussion on what to do in 6 months time when life support gets switched off.

    Australia has record levels of household debt. At almost 200% of household disposable income, we have the 2nd largest debt fuelled housing bubble in the world.

    Is it game over?

    Will Australian's drown in debt, unable to service their mega-mortgages.
     
  2. MTR

    MTR Material Girl Premium Member

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    It will be game over for those who are in debt upto their eyeballs and can no longer service debt.

    its going to be a long road to recovery.

    We have second highest personal debt in the world

    I expect fire sales......those cashed up will have opportunities to buy on a low
     
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  3. datto

    datto Well-Known Member

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    In 6 months most of the newly unemployed will be back working.

    Many people are cashed up and just waiting to spend. Spending will create jobs and job vacancies.

    The future is bright.
     
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  4. C-mac

    C-mac Well-Known Member

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    ^^^^
    This (for those who are cashed up, only). The nexus of property prices declining (thus presenting 'bargain' opportunities) with peak-unemployment (before it calms down again) could be the window of opportunity for buying in Aus, circa 2008-2009 style.

    What I mean is; providing rents don't fall too much further than they already have; the opportunity might present to pick up a cheap purchase-price, just at (or maybe 6 months out, only) the same time that unemployment starts going down again as more and more jobless find jobs. If so, the collateral damage to rents may be minimal and if so, you've possibly bought yourself a discounted property that still fetches decent rent that still features a tenant who can actually continue to pay that rent, since they got a new job again.

    *** usual caveats apply of exclusion of cookie cutter mcmansion 50km-out suburbs; and exclusion of crappy built oversupply high-strata high rise units. Basically, above applies but only for good investment grade stock ***
     
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  5. MTR

    MTR Material Girl Premium Member

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    We could be looking at 10-15% unemployment, this is what experts are predicting, lets see

    Rents already falling, once again lets see whether this stabilises
     
  6. Kangabanga

    Kangabanga Well-Known Member

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    Everything has to revert to mean at some point. Its been 30 years of our debt supercycle, now is just the beginning of a super deleveraging cycle not only globally but for Aus in particular, which I do not think RBA and Gov have the mettle to deal with. They will just blame any crap that happens on the virus and China.
     
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  7. euro73

    euro73 Well-Known Member Business Member

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    I don't think anyone knows how this will play out. All we know right now is that there are several hundred thousand mortgaged properties that have moved to deferred repayments . Have all of them deferred because they had to, or have many done it just because they can? Will those who had to, be in a position to recommence repayments when their deferred period expires? Will banks extend them another 6 months if they are not? All unknowns... but surely if its the difference between a 20-30% correction and massive losses for banks, or deferring some mortgages another 6 months, they may well decide to do the latter. Nothing should be ruled out at this stage. This situation has only been going for @ 2 months in Australia. The shut downs started late March... feels longer, but its nowhere near played itself out yet...

    Having said all of that ...yes, if prices correct in a significant way ( say 30% as some lenders are modeling as worst case by 2023 ) , there will be buying opportunities .... but for investors, cash flow must remain king.
     
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  8. MTR

    MTR Material Girl Premium Member

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    I agree with you, our government very weak
     
  9. MTR

    MTR Material Girl Premium Member

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    Funny enough, I think Perth will fair the best?? Of course I could be very wrong
     
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  10. Kangabanga

    Kangabanga Well-Known Member

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    Yep you can see it already with the current rhetoric towards China, kinda paving the way for a nice easy blame game when things go pear shaped economically.

    If not for the KIWIs and their illustrious leader leading the way with initiating shutdown, we wouldhave just followed UK and be in a much worse state health wise and would have ended up like UK with thousands of deaths and public health crisis.

    and yes perth will do the best now as Iron ore prices are still sky high and WA like QLD has had a good handle on the covid situation.
     
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  11. wylie

    wylie Moderator Staff Member

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    New Zealand is closer to Sydney than Perth. It's like another country over there, as far as travel is concerned.

    I would think that gives it another layer of protection, even when travel opens up, because it is not first on the list of places to visit for many people due to the distance.
     
  12. MTR

    MTR Material Girl Premium Member

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    Perth, fingers crossed..... we have already been through the pain

    I think investors should look closely at Perth property market. Our rents are stabilised and property is undervalued IMO.
     
  13. hieund85

    hieund85 Well-Known Member

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    Aus Fed gov did not learn from NZ gov re lockdown. Scomo was forced to act when Dan Andrew and Gladys Ber announced they would do it for VIC and NSW regardless of the Fed policy.
     
  14. Younginvestor2

    Younginvestor2 Well-Known Member

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    Just got off the phone with my friend who works with one of the big 4. Hot rumour is his bank is considering option for buyers to temporarily convert p and I to interest only ( obviously higher interest rate) after 6 months repayment holiday. And that can be done without the need to reapply- just straight convert.
     
  15. MTR

    MTR Material Girl Premium Member

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    Some logic here
    This is excellent if this happens, will prune around 40% off loan repayments..... this is huge.
     
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  16. Morgs

    Morgs Well-Known Member Business Member

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    That will only be allowed if the regulator allows it... ASIC has been hinted that a 1 year IO period will be able to be provided without assessment but this isn't in policy yet for any lenders.
     
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  17. gman65

    gman65 Well-Known Member

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    ASIC to bend over in 5...4 ...3

    A decade to re-leverage.
     
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  18. euro73

    euro73 Well-Known Member Business Member

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    APRA ( not ASIC ) has released guidance on this on May 8. It is guidance. It is not anything more or anything less. It provides "permission" for lenders to adopt certain behaviours if required - and its fair to assume that it will be required for some borrowers. Essentially what APRA have said is that over the next 6 months they are allowing ADI's to convert P&I to IO for ONE year maximum, without requiring a reassessment, if the ADI determines the borrower can't be adequately assessed otherwise... Specifically, it allows for this to happen without requiring a servicing assessment /servicing calc to be run. And it's for existing borrowers only...it won't apply to new borrowers or anyone wanting new money. Calm down folks... its not anything more than some buying of time - same as all the policy levers that have been pulled are.

    "As outlined in Prudential Practice Guide APG 223 – Residential Mortgage lending (APG 223) paragraph 25, APRA’s guidance on better practice in residential mortgage lending has been that there should be a full serviceability assessment for borrowers where there is a material change in loan conditions.


    In the current environment, APRA acknowledges that there may be operational challenges for ADIs in evaluating the long-term impact of economic stress on borrowers due to COVID-19. However, this should not prevent changes to loan conditions where these are otherwise assessed to be prudent.


    Over the next six months period, APRA therefore accepts that some ADIs may not be able to complete a full serviceability assessment for borrowers seeking a change in their loan conditions. Such changes may include converting from principal and interest to interest only, or for the extension of a loan term. Where changes to loan conditions are made that result in an interest-only period being granted without a normal serviceability assessment, APRA expects that a reasonable period for such an arrangement would not exceed 12 months".


    Banking COVID-19 frequently asked questions | APRA

    I'm afraid the details are quite different to the hot rumours . It's a temporary measure being made available for a short period of time because of exceptional circumstances. It is not a permanent change to existing regulatory guidelines ... Just another of the tools being employed to buy time. Same as mortgage deferments. Helpful certainly...but not particularly huge news

    APRA therefore accepts that some ADIs may not be able to complete a full serviceability assessment for borrowers seeking a change in their loan conditions.

    Such changes may include converting from principal and interest to interest only, or for the extension of a loan term.

    Where changes to loan conditions are made that result in an interest-only period being granted without a normal serviceability assessment, APRA expects that a reasonable period for such an arrangement would not exceed 12 months
    ".
     
    Last edited: 17th May, 2020
  19. Tattler

    Tattler Well-Known Member

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    Still better than nothing, as gives time for property holders to sell house if required before it became a mortgagee sale.

    The reality is that anyone who still have a job and not financially affected should refinance asap to take advantage of the cheap home loan rates.
     
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  20. euro73

    euro73 Well-Known Member Business Member

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    1,2 and 3 year fixed P&I rates are unlikely to ever be this cheap again