How to hold back a flood of mortgage defaults when loan holiday is over

I think there may be some expectation from broader readers that the 'P&I migration' leads to forced sales & then an increased supply & then a corresponding price fall. This would be the usual flow through, but with the halving of mortgage rates in a very short space of time (4-5 years), this typical flow through was largely nipped in the bud on a macro scale.

Interestingly, I think during the large reset in 2018, the transmission flow through to the market was largely demand based, rather than supply based. A very large swap in repayment rates across Aussie households shifted demand for housing for a few years while debt levels normalised and adjusted. There wasn't quite the appetite for lending, housing investment, etc when everyone adjusted to higher IO rates, etc. I don't think there was a large shock to supply associated with this, but it's very hard to measure as the 'cushioning' begun once regulators became a bit spooked by price falls and impacts on economic activity.

 

P&I cliff or the fact APRA made it extremely difficult to borrow and assessment rate of 7+% or other prudential regs.
I’m saying P&I cliff didn’t eventuate the way many on this forums suggested.

I 100% agree however the Prudential rules slowed the economy and stopped investors borrowing. I’m not talking about this.It simply was not a P&I cliff that’s was drilled here for 2 years otherwise it would have eventuates and if not for covid 2020 would be a bumper year for property.

I and many others were slowed in our tracks not because I had io loans I couldn’t roll but simply SERVICING under apras new rules didn’t allow me and so many investors to continue our journey.

 

low stock? Wow here we go

 

Slacks creek, ppl fighting over a lack of listings and paying 150 k over median

Its the same in any suburb that has houses listed near the FHLDS cap... with low listings

FHBs are absolutely out of control.

 

A good dose of unemployment in a recession will sort that nonsense out

 

Since March

 

Those first home buyers may need to do their due diligence and perhaps adjust their expectations if they're looking at newish builds. Not a lot of stock but definitely not a strong market. I'd go as far as saying that most recent sales appear distressed or close to it - no CG, losses after holding and transaction costs...

SQM Research - Property - Sold Prices

SQM Research - Property - Sold Prices

SQM Research - Property - Sold Prices

https://www.realestate.com.au/prope...ep-pdp|sold-pdp:property-history-cta#timeline

https://www.realestate.com.au/prope...ep-pdp|sold-pdp:property-history-cta#timeline

https://www.realestate.com.au/prope...ep-pdp|sold-pdp:property-history-cta#timeline

 

and that's because debt is serviced at P&I remaining term..... if you and many others were stopped in your tracks from borrowing more money as you suggest , it follows that you and many others may also have been stopped in your tracks from refinancing or extending IO terms... and had rates not been cut to provide the cushion, imagine what may have occurred to many borrowers then, as loans migrated from X per month to XY per month .

The mandated assessment rate of 7% wasn't the issue... the mandated assessment rate of 7% assessed at P&I remaining term was the issue... Everyone always seems to omit this very important fact from these arguments. It's the P&I remaining term that changed the game, not the assessment rate of 7. The 7% was of itself, no biggie at all.

If you or many others been assessed at 7% IO and remaining P&I term wasn't in the equation, it would have had minimal impact on borrowing power - chalk and cheese when comparing it to the effect of being assessed at 7% P&I over 20 remaining years or 25 remaining years....

It would have had such a minimal impact that it would even have produced a better servicing result than being assessed at todays record low rates that allow for assessment at @ 5% and 20 or 25 P&I remaining years

And as long as that particular rule is in place, the cliff is still very real and should not be dismissed as hyperbole...

 

I do wonder how many took up the loan holiday simply "because they could". I applied - didn't need to do so but, at the time, didn't know what the "next three months" would hold - bank granted it without even a phone call.

A bit like those taking the super, who had a dip in income but didn't really need the extra monies (know a few of those too)