US and European Banks loss a lot because they over lending
to house owners .Or they bought mortgage secuirty which lending ratio
is very high,many near 100%.
Unlike SG banks allows only 80% of property
price as loan or in some cases,90 %.
All these banks in trouble lent near 100% loan,
to sub prime or non--sub prime borrowers.
In the rising market,owners just refinance their loan to pay
arrearing mortgages and daily expenses.Every body
are happy.
Banks depend heavily on
loss in case the borrowers default.
But with the systematic defaults,Mortgage insurance (or called
private mortgage insurance --PMI)also go bust!!
Banks have to top up their capital,by issuing shares or raise loans.
Oz banks are very brave.They still lend near 100% loan!!
They can afford to do this for the time being.
The property market just keep on heading north for 2o years.
But what if the music stop?
Take note,Oz Banks think they collect 3 % of the property price as
mortgage insurance premium then their butts will be safe.
Do u have a crystal ball?
references:
http://www.aph.gov.au/library/pubs/rn/2006-07/07rn07.htm
price trends
http://www.treasury.gov.au/documents/580/HTML/docshell.asp?URL=House_Prices.asp
Oz,UK and USA property ran in the crrzy trends
http://www.treasury.gov.au/contentitem.asp?NavId=016&ContentID=1396
http://www.treasury.gov.au/documents/1396/PDF/04_Sub-prime_paper.pdf
property market check up
http://business.watoday.com.au/business/anger-over-100-home-loans-20080806-3qp7.html?page=-1
Banks are still offering 100% home loans, despite an increasing risk that falling property prices could mean borrowers owe more than their house is worth.
ANZ, Commonwealth Bank, NAB and Westpac will still lend 100% of the purchase price of a property, less about 3% mortgage insurance, according to broker Loan Market Group. St George will lend 100%, including insurance, at a higher rate.
Consumer protection and welfare groups have described the ongoing practice as "staggering" given the outlook for the housing market, with capital city prices down 0.3% this quarter and some analysts predicting a fall in prices of up to 10% in the next year.
But banks say their low mortgage default rates show their lending practices are sound - contrary to those of some "innovative" non-bank lenders.
David Imber, of the Victorian Council of Social Service, said 100% loans were luring people who could least afford to borrow.
"If we're seeing people borrowing 100% of the price of a property in an unstable market, it's reasonable to conceive that we could be seeing more people in negative equity," he said.
Negative equity occurs when the value of a property falls below the sum borrowed to buy it. British credit data shows one in seven homeowners may soon have negative equity after house prices fell 8% in a year. It is predicted US house prices will have fallen about 30% in two years and almost a third of owners will be in negative equity.
Australian house price data suggests it is those in outer suburbs who are at greatest risk of negative equity.
BIS Shrapnel residential property analyst Angie Zigomanis said home owners in western Sydney had suffered increasingly from negative equity and foreclosure after job losses and severe house price falls. He said Melbourne had similar, smaller pockets of weakness.
Ian Mackintosh, of the Financial and Consumer Rights Council, said it was the responsibility of lenders to properly inform consumers.
"Banks and other lending institutions must share the responsibility of heightening consumer awareness," he said. "It is not just the financial situation of would-be purchasers that must be considered. The personal and social damage that is caused by financial stress is something everyone has a stake in.
"We find it staggering that banks could even be contemplating 100% housing loans … All the reading we have been doing indicates that housing prices are not stable and may continue to decline in the outer suburban markets."
But the major banks defended their lending practices, saying it would be bad for business to lend to risky clients.
A Commonwealth spokesman said the bank had not changed its lending standards and still lent 100% to first-home buyers, who had to pay about 3% lender mortgage insurance.
"The performance of banks in lending has been responsible," he said. About 80% of repossessions were on loans that originated with non-bank lenders, he said.
ANZ, NAB and Westpac said they lent 100% before lender mortgage insurance was deducted. St George said it would occasionally lend 100% including insurance, but client checks were extremely tight.
St George said it had about 500,000 home loans. Of those, about 80 houses were repossessed each year and mortgage arrears were consistent.
Arrears on "subprime" loans - generally made to riskier borrowers - in Australia grew about 4% in the three months to March 31, according to credit data.
But subprime loans account for only 1% of the Australian market, compared with about a quarter of the US market.
Loan Market Group chief executive Jennifer Nielsen said she expected banks to strengthen their criteria. "If you were a borderline 'yes' in the past, your chances of being a 'no' today are getting higher," she said.
''But subprime loans account for only 1% of the Australian market''
Is it true?
The key is how many buffer for banks if price drop?
Near 100% house loan cant provide too much buffer.
Oz banks capital to assets ration is only 4 %.
The bad news seem start to come in:
http://business.smh.com.au/business/housings-downhill-run-has-upside-20080805-3qig.html?page=2
And now, according to the more reliable figures produced by Australian Property Monitors, we see house prices falling in the three months to June in all capital cities bar Adelaide.
In Sydney they fell by 2.1 per cent; in Melbourne, by 0.6 per cent. In the mining boom towns of Brisbane and Perth, they fell by 1.3 per cent and 2.8 per cent.
In the two cities where prices rose highest, the softening has been greatest. Over the year to June, prices rose by just 1.1 per cent in Sydney and fell by 1.6 per cent in Perth.
The bigger they are, the harder they fall. And since the past decade has seen by far the biggest property boom in memory, I won't be surprised to see prices fall back a fair way. Australian Property Monitors' prediction is that national house and unit prices will fall by 10per cent over the coming year.
http://business.smh.com.au/business/homeloan-approvals-shrink-for-a-fifth-month-20080806-3qu2.html
Pl dunt threat this to discourage u moving to Oz.
Just for your info and good luck!!
PS--
http://business.smh.com.au/business/rate-cut-on-way-20080805-3qjg.html
(currently about 9%)