14 September 2006

Home repossessions start to bite

| johnboy
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The ABC is leading their national news site with a story on a sharp rise in home repossession in the ACT.

Apparently low documentation loans from mortgage brokers are the main culprit as they’ve allowed silly people to over-extend themselves.

It is, however, good news for folk looking to get into the market as a rash of forced sales should drive the market down nicely.

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“If you can’t cope with a couple of % points shift in the interest rate you shouldn’t be getting a mortgage.”

When we have borrowed for property our martgage broker recommended doing all budgeting on the basis of a 2% higher rate than what we actually received. That is apparently the number the industry considers gives home owners enough risk mitigation from interest rate rises. Makes sense, really.

If you can’t cope with a couple of % points shift in the interest rate you shouldn’t be getting a mortgage.

If you earn $100,000 per year you shouldn’t be mortgaging a $1,000,000 property with a 10% deposit.

Why do people walk into a mortgage with eyes open and bleat like stuck pigs when they can’t afford what should have been obvious? A fool and their money are soon parted…..or should that be a bogan and his money?

Roland, you seem to only show up when Deb’s changing feet, something you want to tell us ?

Low-doc and no-doc loans are a great idea and a great product. Personally I like to decide how much I can borrow and for what. I haven’t used one of these products yet, but likely will once banks decide I can’t have another investment property.

If you’re a small business owner with irregular (but solid) income, or have an unusual financial situation, they also work well.

The problem as I see it is the lack of financial education people receive. It’s hard to make informed decisions when you don’t know what you’re really getting yourself into – do we all REALLY understand all those small print clauses in our mortgage documents.

Perhaps some proper financial education for our kids is a good first step. There are plenty of resources out there developed by people who have started with nothing and done very well.

i give up:
heres the address

http://www.carefcs.org/

oops! try this:

“They want to take away our home” is on the website now.

I believe that one of the key issues raised in the report was that the non-bank mortgage lending sector is essentially unregulated and that these are the people behind these so called ‘low-doc’ or ‘no-doc’ loans where you don’t need to substantiate your income, assets and savings history etc. to get a loan. There’s a concern that less than scrupulous mortgage brokers might inflate applicant incomes to secure the finance.

In the end though, it’s the applicants that sign the paperwork not the broker so the responsibility rests with them.

The actual numbers behind the 40% increase in repos were something like 65 to 91 – from what I recall they said on radio.

Like many here, I’m fairly unsympathetic to people who have gone in, borrowed more than they can afford, and find themselves coming unstuck when anything goes against them, like a modest rate rise, or petrol costing $20 more each week. Maybe these people should have been more realistic about assessing their ability to pay, and perhaps lower their expectations as to the type of house they think they need.

I’ll be a scavenger….seriously.

If you can pick up a house cheaply do it. If people don’t think before they make such a HUGE decision, then to bad, so sad.

Sorry, rather cyncial tonight.

Does that make you a scavenger of human misery? 😉

Vic Bitterman8:16 pm 14 Sep 06

My last investment property I bought was a mortgagee firesale as it was repo’d from the previous owners.

I picked it up for a song!!!!!!! Very pleased.

vyberlina: no, they don’t.
in fact, they tell you “but you own property”
it doesn’t matter that its being sold under repossesion. they won’t help.

If you’re sucking at the public teat for your housing, then you lose certain options. A key one being “the ability to decide when and where you sell your assets”.

If you want to keep your privacy, go for it. But don’t expect other people to subsidise your living arrangements.

Why not just make the public available to all and make rent unfavourable to those who can afford other housing?

Also, disqualifying on the basis of assets alone can be very unfair, especially if govco decides to starting ‘deeming’ values.

im disqualified on the value of my stamp collection alone.

unlikely id show them my bank statements – none of their business.

the poor should not have to endure such intrusions on their privacy either.

VY, ACT Housing eligibility is here http://www.dhcs.act.gov.au/hcs/Services/PublicHousing/Application/Eligibility.htm
Not sure if ‘special consideration’ comes into it, it would depend on why they lost their house and how that affects the eligibility criteria.

hehehe…the nearest I get to politically correct is paying my speeding fines on time.

Absent Diane1:27 pm 14 Sep 06

nope I detest pseudo-intellectual leftist hippy types … far too PC, no sense of humour and head stuck right up their arse.

Does the ACT govt give any special consideration to persons who have lost their house due to repossession within the context of providing public housing?

AD – that wasn’t you trying to sell me a paper was it? Sorry mate.

Absent Diane1:13 pm 14 Sep 06

thats fucking hilarious…

I also used to laugh at those Green Left commie bums that hung around uni trying to sell their dopey newspaper. One of them got quite cranky when I suggested I should get the paper for free, if they were truly modeling a socialist agenda. Enjoy lining up for a loaf of bread muthafucka.

I remember family members bagging me for selling my Telstra shares at $7.60.

Let the sheeple do their thing – use the knowledge to increase your own wealth.

James-T-Kirk1:05 pm 14 Sep 06

Komunism can never work

James-T-Kirk1:03 pm 14 Sep 06

If I have my way, my next holiday will be funded by all of the “stupid people [who] do not deserve money”.

Cool.

Thats why the stock market is sooo coool, and all of the Ma, and Pa’s out there should buy up the Telstra float, so I can purchase off them at 5% of what they paid.

A lot of people have taken huge mortgages because they thought the property market would rise forever. Duh.
The comment about consumer finance is also spot on. I know so many people who NEED a wide screen telly, overseas trip, etc.
I’m looking to buy again at the moment. Anyone have the list of mortgagee reposessions…?

James-T-Kirk1:00 pm 14 Sep 06

I love grand statements like “40% increase…”

Wow – Lets look at 2 scenarios:

1- Last year there were 1000 reposetions, and this year it is 1400. 40% increase – oh shit, thats bad… Our community had better do something to help.

2- Last year there were 5 reposessions – his year it is 7. Who cares?

If the media says something, it is probably to push their own bandwagon.

If the government says something – then who cares.

This is probably fear feeding fear. A thing that our community loves.

Thats why the 6.00 news is no longer child friendly.

I was very close to the breadline when i got my house – which is basically proof they will lend you too much, but it was the only way i could afford a house (very run down basic house) so i took it. I guess I did plan for rises – i would have had to gt a boarder… lucky i eventually got a payrise.
You are right, the reposessions rises must be due to rates/petrol etc, but I’m sure they’re not all mcMansions, but just people trying to get into the market too.

stupid people do not deserve money, nor do they deserve the right to whinge when it gets taken from them on account of their own stupidity.

It never ceases to amaze me how rich dumb people are though.

As a rule of thumb if you can’t get at least (ie actually save) a 10% deposit together, you probably can’t actually afford it. Not a hard and fast rule but a reliable one. If you can’t get a 5% deposit together, you definately can’t afford it.

i’m not quite to the hilt, but i’m close to it.
i got my rate fixed at 6.84 though, and i’m just working down the variable portion slowly.

THe bigger problem than people lending right to the wall, is consumer finance.
mr and Mrs mcmansion go out and buy their house, which they can reasonably afford. whether or not they need it, is stupid, they want it, and they’re entitled.
Then they think, oh we have this nice new house, we nede new furnitiure
so off they go to hardly normal, and borrow MORE money, more so, consumer finance, at stupid 27% interest rates, or don’t read the fine print.

in many cases, its the consumer loans, not the home loans, that get people into trouble.

agreeing 110% with Snahon

But seepi, I’m sure you still evaluated the actual repayments against your situation before you concluded that you could afford it.

That is where some fall over, they sign up for their loan thinking that if the bank will lend them the money they can afford it. FI’s(generally) don’t take into account individual family lifestyles and thats where you as the borrower must.

Roland: Got a link for that report? A quick google turned up nothing.

Seepi: Of course everyone’s circumstances are different, however job losses and spousal splits have not, to my knowledge, risen in a way that would explain the rise in repossessions (remember, we’re looking at reasons for the rise, not reasons for there being any repossessions at all). What has risen is debt as a percentage of earnings (read “people borrowing closer to their limit”), and the number of “low doc” homeloans being doled out (read “less checking of whether people can really afford to repay a loan”).

Snahon – “And BAM”

That just reminds me of Jay and Silent Bob “Bikkety BAM” – cheers for the smile 🙂

I could hear Jay despensing financial advice in my head

Everyone’s circumstances are different. I borrowed the max and ate rice and pumpkin for a year until I got a payrise.
People may have lost their jobs, or split with their partners, I doubt there are that many who simply found one rate rise pushed them over the edge. (Unless they work for Serco at defence!)

Check out the Consumer LAw centre’s actual report “they want to take our home away”. It’s not just about silly people being overextended.

And of course, the broker still gets a commission even if the borrower defaults on the mortgage.

Trouble is many don’t use their pea sized brain and think opposite to how FI’s present their information.

Instead of thinking about what they can afford as a repayment and asking “If I can repay X, what can I borrow?” they listen to the bells and whistles of the FI’s who say “We’ll lend you Y”.

And BAM they get in over their head. Silly silly people…

I had a similar experience to Spectra – my ‘approval’ amount was obscene. More than double the amount of the home we bought.

People see their ‘borrowing capacity’ and suddenly shift from looking for a home that’s affordable to them to a mini-mansion…

Me and my fiancee are looking at buying another house and selling the one we are in.

We too were credit approved to an absurd amount.
Sure we could pay it off – but its the difference between eating rice and potatos fo 25 years or leading a normal lifestyle.

I would rather a house thats nice but not exuberant and a good lifestyle rather than blowing your budget on the morgage and not haveing any money for good clothes/food/lifestyle etc.

Plus you have to look out for those non bank lenders – some of them can be quite unscrupulous(sp?) and are paramount to loan sharks. St George all the way.

I got a loan late last year, and was “approved” to borrow an obscene amount. An amount that I may have (just) been able to repay, but could never have managed if interest rates rose, or any kind of unforeseen financial issues popped up. I ended up borrowing less than half what they said I could, and getting myself a house I knew I could afford to pay off.

My guess is that many of these repossessions are people who saw the approval number and thought “wow – we could buy an awesome house with that”, then did so. Without thinking about the consequences.

For those people (who are in no small part responsible for the ridiculous increase in house prices), I have no sympathy.

Commonsense would dictate that you do not borrow right to your limit…

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