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MFAA Prosper : Mortgage and Finance Brief 07
Banks could withstand a downturn Australia's major banks are strong enough to withstand a severe downturn in the market, according to global ratings firm Fitch. A 150% surge in property prices in the 10 years to 2008 has resulted in a household debt to disposable income ratio of 159% -- a higher level than the US, UK and Spain had as their housing cycles peaked. However, Fitch says the "big four" and the main lenders have "substantial capacity" to cope with a downturn in the mortgage market. Half of females not reviewing personal finance -- survey says Mortgage Choice says it is "concerning" that more than half of the country's female mortgage holders have no plans to make changes to their mortgage, according to the company's annual Consumer Sentiment Survey. In comparison, 61% of male mortgage holders said they would be making changes to their mortgage. Mortgage Choice spokesperson Kristy Sheppard says, "It is concerning that our annual Consumer Sentiment Survey found less than half of Australia's female property borrowers intend to make adjustments to their personal finances this year. Everyone with a large debt commitment should review that commitment and their budget every year, at the very least." Fixed rate interest An increasing amount of homeowners are fixing their home loan interest rates. A number of financial institutions, including BankSA and Australian Central Credit Union, have reported an increase in fixed rate applications. Bank SA General Manager Chris Ward was quoted as saying, "19% of our new loan applicants in December took a fixed rate -- compared with 4% in December 2009." Five billion dollars worth of mortgages and commercial loans could be at risk of default due to the floods in south east Queensland, according to a report by Goldman Sachs. Around 16,500 homes were damaged by the floods, and many mortgage brokers and their clients were in the path of the flood water, but local brokers say it is too early to assess how many clients might default on their loans. Tim Rombouts' mortgage broking office is in the heart of the Lockyer Valley, which felt the full brunt of the floods that cascaded down the Toowoomba escarpment. "We were cut off for four days, although luckily we are on higher ground so I'll be okay," he said. "I've got 650 clients with 450 in the Lockyer Valley, and about 30 per cent of the valley was impacted. Business has pretty much just stopped and many people have lost their businesses altogether," he said. "The next six months you are going to see it (defaults), but right now it is too difficult to put a number on it. "We've sent a flyer off to our customers advising them of the hardship provisions within their mortgage contracts and to contact their bank." "I am personally very concerned that valuations have changed and a number of settlements are being cancelled," says Rombouts. Hedda Pike has been a mortgage broker in Ipswich for 15 years and believes that defaults are inevitable. "My office is a total write off -- it no longer exists. I'm working from home, but I will bounce back. There are plenty of home owners near here in a much worse state," she says. "It absolutely stands to reason that a lot of people are going to have trouble meeting their mortgage repayments. "There will be a lot of people who will need a six month moratorium on their repayments. Most banks are offering three months, but it's not really enough time to catch up when you have lost everything and, let's face it, it takes six months to repossess a property anyway," she says. Toowoomba broker Gary Young had water rushing past his door but was spared. He says that it is too early as yet to assess the number of defaults, but is producing a flyer offering sobering advice. "I will be telling my customers that to have a reduction or moratorium is not a free ride. Whatever relief is offered will incur an interest penalty and will be added on at the other end," he said. Flood of mortgage defaults expected 18 | Mortgage & Finance brief News
Mortgage and Finance Brief 06
Mortgage and Finance Brief 08