Get ready...it will happen !!!

Melbourne BBQ time discussion:

- I live here
- Wow, same suburb where I live, it went up like 100% in the last 4 years
- I know, but I am selling now
- Why, the market is still pretty strong, lot of developers in the area
- I don`t want but I have to. Cannot afford the mortgage anymore after the latest interest rate rise

I think this will be the turning point, people with high LVR not able to service anymore. When? Who knows, but that`s the direction.

What do you think?

 

I would have thought it would start with IPs first. Do you think PPORs are more likely?

 

you will have to dig deeper than the headline numbers of say RP data showing 'my suburb went up XXX%'...just because the medians went up does not mean your individual property did. It could easilly be that they sold more expensive stuff that pushed up the medians. A truer test would be to see comparable property in your hood what that sold for. That should give you an understanding of whether yours likely went up an if so how much.

 

I actually don't understand this. If the IR rises by 0.25%, their costs would increase by around 20-30$ pw. If they go up by 0.5%, they'll be paying like 50$ more pw or thereabouts. And that's all that happened so far.

So you are saying they can't afford to pay 20-50$ more pw?

 

Also Confused. I understand asset rich but cashflow poor. But come on they doubled their property in 4 years and can't afford an extra few grand a year. I think not. LOC anyone. Overtime. Second job. Cut late's.

 

@JDP1 Agree, it was just to give an idea. @Realist35 I didn`t investigate much. It was just interesting for me to hear what I have been reading for the last 3 years. I guess with high LVR it`s not only the rate the issue but also changing life conditions especially if you don`t have a buffer.

 

I don't think that's happening yet.
Only thing happening now is people have started to fix their rates/loans to save them from future rate rises.
They have now experienced that even though RBA doesn't do anything but banks can independently move rates up.

 

Surely in this example the financial institution would have never lent with the purchaser being so close to servicability limit

 

They may have underestimated their living expenses?

 

This is the most stupid post and should be deleted. You bought the house 4 years ago when it was dirt cheap and IR was way higher than now. And now you claimed you can't afford mortgage anymore?
These types of users should be banned from the forum.

 

I agree in regards to the serviceability issue between then and now.

I didn't read it as the OP's personal position though.

 

I believe the OP is referring to a conversation he/she overheard or were involved in at a BBQ. I don't necessarily think it's the OP's position.

 

agree with quite alot of the comments. If IR goes up 1st would be the IPs to go and then pay the PPOR off. I don't think people will start selling PPOR residents just because the IR are up and then go rent somewhere else.

 

That magic word "buffer" as mentioned by Luca.

Out Mt Druitt way that word takes on a different meaning. But in a home loan context it is a necessity. It buys time.

People without buffers may feel the stress when things go pear shaped. Could lead to a property price crash. Then it's game over.....both IPs and PPORs will be be caught in the vortex of spiralling values.

 

You haven't been around long. There have been many comments far more stupid than that.

 

A guy that works for us is crapping himself, as he reckons he will not be able to afford one single rate rise. I believe him he is terrible with money

 

You're assuming they have a $500k mortgage.
Mines bigger than that.
My brothers is $1mil.

$5k/yr extra on a $1mil mortgage is a decent chunk of money in my eyes.

(We can afford a lot more than that if rates go much higher, but just saying).
$5k could cripple some people who are up to their necks in debt they barely cover now.

 

How does someone like that get a loan in the first place?

 

I could afford a few rate rises, but 7-8% is probably my threshold if rents stay stagnant or decrease.

Especially as mine are currently set up to be cashflow netural before depreciation.

 

Tell him to fix his loan asap then!