Real Estate Economics Archives at SocketSite™::
Today, the new conforming loan limits are expected to be announced. $80 billion into the banking system has prevented an all-out market meltdown,
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Following the recent US sub-prime issues and Global Capital Market events the flow on effects have placed increasing pressure on interest rates for Australian housing loans. The funds holders are nervous and are increasing the costs of funds to hedge their investment. So trying to understand where the Australian Capital Markets are going with interest rates is a bit of a mine field at the moment.
Good Returns - Rate updates::
Both Westpac and TSB Bank saw their shares of the mortgage market shrink slightly in ANZ says that the increases in fixed lending have, in effect,
http://www.goodreturns.co.nz/section/58.htmlHOME |
The Initial Problem…
It seems that many different but related factors came together to create this disaster. A US property boom which made home ownership difficult was made easier by sub-prime lenders freely extending substantial levels of credit to people who in reality had no capability of repaying the loans. These people may or may not have had a poor credit history but regardless did not have capacity to repay the large amounts at high LVR’s that they borrowed. These people were offered loans on low start up interest rates of 1 or 2% pa, ie. honeymoon rates, reverting to a standard rate after a couple of years. All of these loans were to revert to a rate around the 3 to 4% mark but the recent impacts of sixteen US interest rate rises taking current rates to about 7% pa substantially impacted on the borrowers ability to repay the loan and created the present default crisis.
The Flow on effects…
Why has it affected us in Australia when we dont have a default problem? Without going into the complexities of the capital markets, global lenders to Australian banks or non-banks have been spooked by the issues in the US and as a consequence are either demanding greater risk premiums in the form of higher interest rates or indeed not lending at all. Essentially in an environment of fear and loss it is easier and safer to park money in cash or government bonds and wait.
Paper Economy - A Real Estate Bubble Blog::
Mortgage market needs $1 trillion to support prices, FBR says .. Fannie Mae- Freddie Mac conforming loan limits have been released by the U.S. Department
http://www.paperdinero.com/Times.aspx?edition=3/7/2008HOME |
What does this mean for interest rates in Australia and loan availability? Non bank lenders are more susceptible to market pressure due to sourcing funding from the US and Global market on a 90 day securitisation. Most non banks have been forced to raise their rates above the Reserve Bank rate rises by between 0.4% to 1% as their investors squeeze them.
Traditional banks have not been affected to the same degree but are not immune to the pressures and it is suspected that they will also increase rate above the recent reserve Bank rate increase.
As Investors and lenders become more nervous about the marketplace, credit policy has tightened in recent times and reductions on loan to value ratios and increased serviceability tests have been implemented to reduce risk and increase liquidity. Very few lenders will go outside policy now days, looking for vanilla lending, either fit the guidelines or ‘find another lender’ attitude is being display by most lenders.
Non conforming borrowers have enjoyed a period of competitive interest rates but should expect further increases to rate that will reflect their current position. All loans will be affected but more pressure is being brought to bear on low doc home loans.
Settlements have also been slowed to ensure the lenders have sufficient funds to honour their approvals. Some lenders have restricted the number of brokers who can sell their products to offset the funds shortage.
Interesting times are ahead for the Australian Mortgage Market, so strap yourself in I think we are in for quite a ride.
© Rob Donald, Altrust Finance Group 20th November 2007
www.altrust.com.au
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The Global Effect of the US Meltdown on Non Conforming Lending on the Australian Mortgage Market