The IO property cliff disaster? Fact or fiction

Discussion in 'Property Market Economics' started by Sackie, 1st Feb, 2020.

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  1. DueDiligence

    DueDiligence Well-Known Member

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    This is the real agenda. An IO loan is the banks problem more than it is for the customer. It’s about the banks position, not the customer, and the bank and the LMI provider is on the hook, it’s their capital at risk, especially if it all goes to hell quickly.

    It’s another example of asymmetry at work. These loans at origination were risk off, now risk is on, they all get frozen and new rules put in place to stop defaults. Same loans written can cause an increase in prices but clearing them out at a loss is .... not allowed.
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    In part thats right, objectively............

    • Banks make money on rate spread, and generally most IO mortgages are well secured as at today, possibly less so down the track
    • Gov Pressure to leave spending in the economy
    • APRA Guidance
    • Compassionate Moral Ethical reasons


    ta
    rolf
     
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  3. DueDiligence

    DueDiligence Well-Known Member

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    I’d challenge that last (and first) one. A bank has no moral obligation, they are a financial institute and they are only doing this because their position and insurers are at risk.

    LVRs won’t improve into next year, they will deteriorate if anything so why not stop the music now. IO loans should be banned, they are entirely predicated on the maintenance of capital gains.

    Through 2014/15/16 they handed IO loans out like flyers, now they don’t know what to do with them. Some people I know personally got them and didn’t even know what it meant when it reset .
     
    Last edited: 28th Jun, 2020
  4. MTR

    MTR Well-Known Member

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    How’s everyone going with this?

    I think low interest rate/drops saving the bacon??
     
  5. Heinz57

    Heinz57 Well-Known Member

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    You got it. 2.59% bought us some breathing space but unless rents rise in Brisbane we will be selling.
     
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  6. MWI

    MWI Well-Known Member

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    Similar IO interest rate bought us next 3 years, some extra cashflow, a buffer and MOST IMPORTANT to us....TIME in our situation, BUT still very low LVRs so no plan to sell!
    Who knows what will happen in 3 years?
    Also, as CEOs of our property business, CASHFLOW, LIQUIDITY and TIMING are critical factors in running any kind of business, wouldn't you agree?
     
  7. MTR

    MTR Well-Known Member

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    Whats happening with rents ATM in Bris??

    in Perth its nuts, low stock, rents rising, vacancy rates dropping........
     
  8. MWI

    MWI Well-Known Member

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    In BRI half of my portfolio I have just slight increases in rent the rest left same, it depends upon your IPs and who resides there and what situation they are in and demographics for the area, a lot of factors IMHO.
    For example, if median affordable market, or few in household, or stable jobs, if your rental was below median, if not much supply in the area then you can try for slight increase.
    However, I had to be proactive with my agent as they had a standard email to leave rents be, due to COVID-19, whereas I did analyse the demand in the area, all other demographics and considered each tenant's situation before making my decisions, so some skill set required.
     
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  9. Tom Rivera

    Tom Rivera Property Manager Business Member

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    GREAT market here right now! I've started to bump up asking rents on a couple of places and we're getting great people renting quickly.
     
  10. MTR

    MTR Well-Known Member

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    Its looking good ...... its time
     
  11. Heinz57

    Heinz57 Well-Known Member

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    Agree. But there comes a point where it’s time to stop flogging a dead horse. I’ll let you know when that is as there will be a boom soon after!
     
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  12. Heinz57

    Heinz57 Well-Known Member

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    Interesting re the rents I put small increases through
     
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  13. MWI

    MWI Well-Known Member

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    That's true if you consider or classify your investment to be poor, if not you may hang to it forever? What else out there is there at the moment to invest into?
     
  14. MTR

    MTR Well-Known Member

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    Very funny

    Get rid of lemons absolutely
     
  15. Heinz57

    Heinz57 Well-Known Member

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    Mostly index funds for us VAS and VGS.

    Whether RE is a poor investment depends on the Brisbane market now.
     
  16. MWI

    MWI Well-Known Member

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    But I couldn't sleep well at nights having $Millions invested and then seeing $90 down to say $60 overnight and I suppose back up slowly now....? I can sleep having such $ invested to the tune of millions in investments in RE, just me.
    With small amounts yes but many digits ... can you?:oops:
     
  17. Property Baron

    Property Baron Well-Known Member

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    No boom anytime soon - Only if your Jurgen Klopp BOOM
     
  18. Heinz57

    Heinz57 Well-Known Member

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    It’s not always comfortable :)

    but you still get the divi. Just like collecting the rent.
     
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  19. MTR

    MTR Well-Known Member

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    Had to google this:)
     
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  20. Vanillascent

    Vanillascent Well-Known Member

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    I guess companies in which shareholders are invested can fall over completely, leaving you with nothing but capital losses, a bruised ego and no chance of a comeback. Whereas RE, even if burnt to the ground will have some worth. Unless global warming wipes out your waterfront property or it becomes a giant sinkhole, you have some fall back value in RE I guess, even if it is just land value and at some point, maybe not immediately, could be sold.
     
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