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Sydney’s Mortgage Forbearance: Managing Profit Amid Challenges – Last year, the local economy faced low income growth and low economic growth due to low housing prices. Given the high level of household debt, these actions can reduce household financial strength. There are already signs of increasing financial stress, especially in areas of financial crisis. Interest rates on mortgages continue to rise, particularly in Western Australia and the Northern Territory, but are generally still very low by international standards. Strong job growth, extremely low interest rates and changes in lending standards in recent years have contributed to these results. Credit risk has increased in Western Australia and the Northern Territory, but remains low.
In the future, increased uncertainty in the global and domestic economy will add to the challenges faced by families. In contrast, recent housing market reforms in Sydney and Melbourne have reduced the number of high-income households and low-income households. In general, households are often in a better position to pay off their debt: households with more debt have higher incomes, and many pay in advance. The recent reduction in interest rates will help borrowers pay off their debt with reduced interest. The improvement of bank lending standards in recent years reduces the risk that low interest rates will lead to an increase in debt.
Sydney’s Mortgage Forbearance: Managing Profit Amid Challenges
Finances are generally good, although there are risks in some companies. This includes construction companies, suppliers of smart goods and companies affected by the drought in the Middle East. In line with the challenges for retailers today, inventory is low and availability is increasing. In contrast, the office and industrial markets in Sydney and Melbourne continue to grow, with rents rising and interest rates falling. Yields on office equipment continue to decline, although they are attractive compared to other asset classes.
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The housing market is a major source of systemic risk that must be closely monitored, with housing accounting for 40-50% of household and bank assets. Overall, the risk associated with the property market has eased slightly as property sales have increased in Sydney and Melbourne. After more than a year of decline, house prices in Sydney and Melbourne rose in the four months to September with house prices rising sharply (Graph 2.1). There are indications that the threat may be close to where we are. The stability of the housing market in these cities is associated with a decrease in income, the Australian Prudential Regulation Authority (APRA) changed the interest rate used to evaluate the loan ( described below) and to eliminate uncertainty about other policies after the federal election. . . Additionally, the size of the initial price drop may be sufficient to stimulate additional demand.
Unlike Sydney and Melbourne, house prices in Western Australia and the Northern Territory have been stable for a long time. In Perth, house prices are 20 per cent below their 2014 peak and elsewhere in Western Australia, house prices have fallen by 10 per cent in the past six months. Housing demand in Western Australia has been weighed down by population decline and continued weakness in the macro economy. Living conditions in cities and other large areas are generally weak. In general, the housing market has not experienced the previous price declines in Sydney and Melbourne, and prices in general are close to the 2018 peak.
Low cost housing has become a growing segment of new additions to the housing market. Advanced developments take a long time to prepare and develop and therefore their supply may not respond quickly to changes in demand. Dwelling permits have fallen sharply since the end of 2017, and indicators of future construction activity suggest further declines in housing approvals are likely in the near future (Graph 2.2). New home completions in Sydney and Melbourne remain high, but have increased significantly (Graph 2.3). The decline in activity reflects the impact of lower demand from consumers and reduced credit for manufacturers and buyers. For developers, pre-sale bank financing is very difficult, and most of the development is provided by non-bank lenders.
Housing supply in Sydney has been linked to increased rental activity and resulted in lower rents (Graph 2.4). In Melbourne, new housing has increased and the number of tenants has changed slightly.
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In Melbourne, continued population growth and weak indicators of future construction activity suggest the risk of congestion is low. The same is the case in Sydney, although job growth suggests there are more opportunities, especially in other areas. However, given the delays in development and planning, there is a possibility of reduced income after a few years if the housing subsidy is significantly lower than the condition of the housing.
Loan growth has slowed since mid-2017. In the last six months of the year, mortgage loan growth for investors and homeowners has been in the ‘decade low, with an increase in loans to investors (Graph 2.5). The decline of the big banks was particularly marked. Correspondence with lenders and borrowers shows that lending has decreased in recent years with little change in loan approval rates. There are signs of an increase in loan applications and approvals recently, but this is due to the housing market where loan growth is still very low.
Lenders have gone through a reduction in interest rates on loans. However, the non-price factor remains stronger than in recent years, despite the decline in performance levels over the past six months. In July, APRA changed its guidance on interest rates and buffers used by banks to assess borrowers’ ability to repay loans. The change was made because long-term interest rates have increased interest rates by 7%, especially for low-cost loans. The borrower must deposit 7 percent interest or interest on the loan and 2 percent. APRA’s new guidelines replace the 7 percent interest rate and the requirement for banks to set their own interest rates, with interest rates rising to 2.5 percent.
The lender initially announced a new interest rate of about 1½-2 percent lower than before and a corresponding buffer of at least 2.5 percent. The result is an increase in the amount of credit available to many borrowers. In low interest loans (such as home equity loans), the loan amount is higher than high interest loans (such as home equity loans). investors only). In reality, however, only a small percentage of borrowers take out loans close to their existing ones, which means the impact on debt growth is minimal.
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On the other hand, some previous changes in loan rates have been applied for the past six months. This includes increased focus on revenue verification (such as careful monitoring of transaction accounts) and the implementation of changes in 2018 to the Measurement of Annual Expenses. households (which led to lower income households). Banks also imposed restrictions on loans and increased interest rates used to check existing applications. The gradual expansion of the Comprehensive Credit Report to cover mortgages, and credit cards, is unlikely to reduce delinquencies. Only a small number of borrowers are expected to have other collateral that has gone through the existing process.
ASIC is conducting a stakeholder consultation on updating its responsible lending guidelines. In August, the Supreme Court issued its decision in the case of Australian Securities and Investments Commission (ASIC) v Westpac on how the lending rules should be applied. ASIC is appealing the decision.
The share of outstanding debt in the economy has increased to about 3¾ percent (Graph 2.6). More than half of all loans are in Western Australia and the Northern Territory. If house prices fall significantly in Western Australia and the Northern Territory, the share of mortgages in the hardest hit states will increase significantly. A 10 percent fall in house prices in Western Australia and the Northern Territory is estimated to increase the share of mortgages in these areas from a fifth to a third. However, this can lead to financial problems for the borrowers and huge losses for the borrowers.
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