Commonwealth Bank to begin “encouraged” property sales

CBA may ask struggling customers to downsize

Commonwealth Bank says its most over-leveraged borrowers – those whose prospects for returning to work after the coronavirus look the bleakest – could be encouraged to downsize the family home or sell multiple investment properties.​

 

Sounds like an interesting article.

I might ask CBA for an equity release loan so that I can subscribe to Fin Review and read the article.

 

Better to identify the really high risk borrowers and ask them to sell on their own terms, instead of the bank forcing it on them. It's unfortunate, but there was always going to be some that wouldn't recover from this.

 

How could they possibly downsize? The bank wouldn't refinance if they are in that difficult a position.

 

Finance piece from Barefoot Investor:

“Get out now.”

That’s the advice the CEO of NAB has given to homeowners who are struggling to make their repayments.

Yes, in his quarterly trading update last week, NAB’s new-ish chief, Ross McEwan, warned:

“There will be some circumstances where people are better off selling out early and taking some equity out of their homes, or keeping some equity, before it disappears.”

While most of the media didn’t give his words much attention, there are two good reasons that you and I should:

First, because in all the years I’ve been doing this column I’ve never heard a bank boss speak so candidly.

Bank bosses are basically politicians: they get parachuted into the top job, stay there for five years, and rocket out with $40 million. Their main job is to stick to the script: “keep lending”. (And we’ve all witnessed how bad things go when bank bosses go off script, like getting into wealth management.)

So why is NAB’s CEO sticking his neck out?

Well, that brings me to my second point: he obviously doesn’t like what he sees on the horizon.

And know this: McEwan isn’t peering into a cloudy crystal ball. Over the years NAB has invested billions into tracking its customers’ every financial move. In fact, all the banks have incredibly detailed customer analytics that tell them what people are doing — or not doing — with their money, in real time.

Now, according to the banking regulator, APRA, roughly 1 in 10 mortgages in Australia are paused.

Which gets me thinking ...

On one side, how long can the banks cop 10% of their customers not paying?

On the other, when will customers who are really struggling finally bite the bullet?

It’s a grim situation.

My hunch is that the banks are betting that the overwhelming majority of their customers will get through this. Yet they also know a small number of their customers won’t, and so they (well at least Ross McEwan) are turning up the heat on them.

My advice?

Please don’t misquote me: I am not saying you should sell your home.

What I am saying is don’t be a frog … if you were in hot water before COVID hit, don’t just sit there bubbling away.

We’re still early on in this crisis, and you have more options than you think. And if you want someone independent (and free!) to walk beside you and carefully lay out your options, call the National Debt Helpline on 1800 007 007 and speak to a financial counsellor (like me) immediately.

The last word goes to McEwan:

“We’ve seen in other crises around the world, when people try to hold on they end up walking away with nothing.”

Don’t say you haven’t been warned.

Tread Your Own Path!

 

At times of great uncertainty, if your job has disappeared or is precarious, selling a home you can no longer afford is probably the best advice.

Better to bite the bullet and control the sale, or risk repossession and a forced sale by the lender.

 

Yep.... reckon it's the first couple of years of having a home loan that's the hardest.
You get so many bills as a home owner, council rates, water rates, strata fees, repairs plus the mortgage repayments.

My collegue (for context, originally from India so may not have family support here) just bought a house in Rooty Hill maybe a year ago. His wife was out of work (recently had a baby). And they got a car loan. Firstly, finding the commute to the city from Rooty Hill much more significant than from Riverwood where they were previously living.

Then, my colleague was really of the mindset he did not like his job. But he was really stuck. No option to quit. Plus, I'd think jobs are not easy to get in these times unless you know somebody.

Thankfully, his wife was able to get a job just before the pandemic really hit.

If push comes to shove, you can get housemates, or rent your home out and move somewhere cheaper but how many people want to go down that route?

 

In different circumstances I would suggest that as a first option, but with COVID conditions on leases that path is too uncertain.

Rent out your house to someone who then loses their job due to Covid, and you could be stuck with a tenant on court-ordered reduced rent who you can’t evict to sell the property.

An even worse mess.

 

I have done the long commute 1.25 to 1.5 hours on a suburban train, it ruins your health and well being long term. Usually standing for an hour. Gained weight doing it. Lost sleep. Always tired. It's not a matter of 'just commute' is an entire lifestyle. A big decision.

 

Some may object depending on the age group mindset that they do not deserve the hit by selling of the investments they control..
Some with all the changes over the years with the rates this low would be better selling of before you wait in line with everyone selling..

 

I think this is quite sound advice. If I didn’t have much of a buffer, multiple IPs and my income decreased significantly with little prospect of it increasing I’d be doing exactly this. And quickly before everyone else does.

I think even some risk adverse people who were tracking well may be suffering now.

Thanking my lucky stars I’m not one of them.

 

Very interesting reading everyone’s varied opinions. Now more than ever, generalised advice is so dangerous for the receiver. I do hope those who are most vulnerable take the time (and perhaps a little bit of $) and seek specific advice or devise their own well thought out plan and defence strategies. We are lucky but still vulnerable. Even reading through the forums it’s amazing how different everyone’s views are -really highlights the importance of perspective and individual circumstances. At least the forums give a balanced view, although those that need this balanced view most might not be on this forum!

 

If you dont have high lvr/debt or you can service debt then there should be no issue. No need to panic

The problem is many have been getting drunk on debt in Oz.

Stats dont lie, we have send highest personal debt in the world

 

Now NAB predicting huge drops? I dont see it

Reserve Bank of Australia says 40 per cent house price fall is 'plausible' because of COVID-19 | Daily Mail Online


However if you have too much debt and struggling with servicing it may be a very good time to evaluate your scenario and offload sooner than later

 

It never ceases to amaze me how little funds people have in cash reserves:

“The average Australian has $28,246 in cash savings, with men having $36,531 in back-up funds, and women with a significantly lower $20,368.”

Generation Z: Born in 1995 and after, so up to 24 years old, this age group has an average $10,116.

Generation Y: Born between 1980 and 1994, or aged between 25 and 39, people in this age group have an average $19,752.

Generation X: Born between 1960 and 1979, or aged between 40 and 59, this age group has an average $34,257.

Baby Boomers: Born up until 1959, or aged 60 and older, the average Baby Boomer has $42,043.​

How much do Aussies your age have in savings?

Obviously, the amount one should have in savings is dependent on age (as shown above), dependants, health, job security, risk profile, debt, etc.

For investors, I have always advocated that one should have between 5% and 15% of their assets in cash, as a guide. That way, should the manure hit the fan (eg job loss, health issue, pandemic, ...), one can make it through to the other side.

For examole, our cash reserves were 10% before COVID was unleashed. For far (touch wood), we haven’t touched our reserves.

One way to destroy net worth (and good mental health) is to sell assets during a fire sale.

I am sure many have learnt/been reminded of this principle but it will be interesting to see how many will heed the lesson in a couple of years time.

As the old saying goes, if we did a better job of listening (and remembering), history wouldn’t have to repeat itself.

 

I’ve always found this measure rather misleading because it only considers one side of the balance sheet without context of the other side.

40k in savings with debt of 720k and equity of 80k. (FT job 100k/yr)
Versus
5k in savings with debt of 0k and equity of 800k. (FT job 200k/yr)

Clearly, savings alone is not a great indicator of financial health or resilience however it is prudent for investors to maintain a decent cash reserve to mitigate financial risks.

 

Tell you what I reckon...this is sabre rattling by bank bosses aimed not at scaring the horses (mortgage holders), but pollies, the RBA, and APRA. None of the latter stakeholders want to see home lending dry-up, valuations plummit, and the voting public baying for blood when consumer confidence continues to wane.

...However in the wake of the Royal Commission, there's a bit of 'gridlock' in the system which needs unblocking for the cheap credit to really get flowing again. Those roadblocks aren't easy to get around unless the govt and APRA can justify short-circuiting them. In my humble opinion.

 

I thought cheap credit is available now, the interest rate is at record low already! It is a matter of APRA loosening the condition of credit ......? I doubt APRA would do that though.

 

IMHO it is NOT a measure. That is why I wrote:

If this is one's total assets, then I would class this as risky financial management. If it was me, I would want a cash balance closer to $80,000 or even up towards $120,000 (depending on a lot of other personal attributes). So, the 5% to 15% guide still works for me.

If this is one's total assets, then I would class this as risky financial management as well. $5,000 can get burnt quite easily if disaster occurs. I would also class this situation as lazy financial management (assets aren't working very hard at all), poor financial management as the assets aren't diversified, ...

Depending other personal attributes, this situation is possibly worst than the case above.

Totally agree. I would go even further - savings alone is NOT an indicator of financial health or resilience at all.

IMHO, health and resilience are components of good financial management and a decent cash reserve is another component.

Totally agree and the 5% to 15% calculation provides some guidance as to what is decent.

As another example, having total assets of $1M in cash might be viewed by some as a decent cash reserve but I would class it as in-decent. On top of that, I would view it is bad financial management.

 

Technically it is, but you're right...volumes have been seriously crimped. ASIC shelving its appeal in the Westpac case, so that might give APRA a bit more leeway in their approach - the govt also needs to give APRA a discreet nudge, but is probably waiting on when to pull that trigger. At the moment, the major housing markets (Vic excepted) are relatively stable.