Interest-only loan reprieve coming as banks try to avoid a financial storm, but investors fear it's

Discussion in 'Property Market Economics' started by Redwing, 23rd May, 2020.

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  1. Redwing

    Redwing Well-Known Member

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    One of Australia's major banks has offered relief to thousands of property investors who hold interest-only home loans, responding to claims the industry is not doing enough to stave off a potential property crisis.

    Key points:
    • Many investors are being forced to pay more as interest-only periods end
    • This means they will now have to pay principal and interest on loans
    • They fear being forced to sell in falling markets if they can't meet payments
    Westpac has pledged to extend borrowers' interest-only periods after WA Senator Dean Smith criticised the industry for failing to support landlords, many of whom are self-funded retirees, who were struggling with higher repayments due to their loans switching to principal and interest.

    Senator Smith said he would canvas support for a Senate inquiry into the banks' treatment of property investors after hearing disturbing stories of financial hardship.

    He said he feared investors pushed to the wall could lead to a worst-case scenario of a "tsunami of forced sales".

    Westpac has now confirmed borrowers can apply to extend the interest-only periods of their loans for up to a year, instead of being forced to start paying the principal of their loans when it expires.
     
  2. Redwing

    Redwing Well-Known Member

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    Ms McShane, a former administrative assistant, and her husband, an ex-electrician, started investing in property 20 years ago to try to fund their retirement.

    They currently have three investment properties, two in Queensland and one in Western Australia.

    But instead of earning an income from them, the couple in their 60s are paying $9,000 a month to the bank to cover their loans, which switched from interest-only to principal and interest last year.

    Sydney investor Mike Scotland, a former school teacher, owes $1.1 million to the banks and is in a similar predicament.

    Mr Scotland has six investment properties and all the loans have switched to principal and interest.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    How ridiculous!
     
  4. KateSydney

    KateSydney Well-Known Member

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    Can't comment on the plight of these particular investors.
    But Dean Smith has the clout now to frighten banks - he's the guy who got the same-sex marriage bill up.
    Commands a lot of respect from all sides of parliament for that.
     
  5. Angel

    Angel Well-Known Member

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    Which part?
     
    Rich2011 likes this.
  6. Shazz@

    Shazz@ Well-Known Member

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    Seems like Covid will be some people’s get out jail card
     
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  7. ellejay

    ellejay Well-Known Member

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    These investors need to take a good look at their strategy. To have been investing for 20 years and be paying that much out in your 60s to hold property seems completely stupid. Covid or not they need to make some serious changes.

     
    craigc, wilso8948, 2FAST4U and 4 others like this.
  8. Archaon

    Archaon Well-Known Member

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    Sounds like someone got caught out by the APRA changes and didn't meet servicing criteria to re-finance.
     
    DoubleD likes this.
  9. Redwing

    Redwing Well-Known Member

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    DoubleD likes this.
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    WBC has a large issue with many longer term investors...........

    Its not uncommon to see that the bank has extended IO multiple times but NOT extended the PI term, foolish at best, perhaps negligent at worst.

    We Inherited one a few years back that had 7 years PI left on a 450 k loan, on an asset that was now worth 350, and the fella was in his mid 60s.

    Typically, the lenders will work with the borrower here, since closing them down crystalises a loss.

    ta
    rolf
     
  11. 2FAST4U

    2FAST4U Well-Known Member

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    Their story has more holes than Swiss cheese.
     
  12. Melbourne_guy

    Melbourne_guy Well-Known Member

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    This shines a light into bank behaviours and says more about banking lending policy and financial regulation that deserves wider coverage.

    Senator Dean Smith needs to be careful for what he wishes -- the potential consequences are that in future, customers will find financing and re-financing a lot more difficult and restrictive.
     
  13. Peter2013

    Peter2013 Well-Known Member

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    Just announced:

    "Westpac will allow borrowers who have been financially hit by coronavirus to extend the interest-only term of their home loan by an extra year, as an alternative to deferring their payments."

    "General manager of home loans Will Ranken said the changes were introduced in response to customer demand."

    Meanwhile....

    Westpac an 'outlier' in risk management
    A review of the bank's approach to risk management revealed a dog's breakfast of malfunctioning systems and lack of engagement at the top.