Smack in the face of a US housing bust and an enormous property bubble in Australia, Australian lenders are offering up to 105% mortgages.
It is amazing to see sheer stupidity played out on the assumption “It’s Different in Australia”.
Please consider Lenders back to throwing cash at buyers
Next month, non-bank lender Mortgage House will offer a home loan equivalent to 105 per cent of the property’s value – the most generous deal since the global financial crisis kicked in three years ago.
The company also offers a 99 per cent loan-to-value ratio loan, which it launched last month, and says applications have been flooding in. “Demand is really strong; people are finding it difficult to save substantial deposits” Mortgage House CEO Ken Sayer said.
Last week, Westpac raised its LVR for new customers from 87 per cent to 92 per cent, reversing the cut it made back in January; while ANZ also last week raised the maximum LVRs from 95 per cent to 97 per cent for existing customers, and from 90 per cent to 92 per cent for new borrowers
Westpac denied it was fueling house-price growth and said the falling unemployment and strong economy were behind its decision.
“This change reflects our growing confidence in the economic environment, reflected in the low level of delinquencies for this market segment,” it said.
Australia Lenders Fuel the Bubble
In the US banks loosened lending standards and kept right on doing it until the whole mad scheme blew up. Australian banks are now making the same mistake.
People find it difficult to save for a down payment for the specific reason Australia is in a bubble. And just as the US bubble burst so will Australia’s. It is really sad to see Australia lenders fuel the bubble this way.
One thing different in Australia regards the ability to “walk away”. Clearly the lenders are playing off that, with no regards to ethical conduct. It won’t matter.
Bubbles always pop no matter what the conditions or restraints are.
For example, the Bankruptcy Reform Act of 2005 was supposed to halt bankruptcies in the US. After the bill passed, lenders, especially credit card and Home Equity lenders, took advantage of the situation counting on home prices to rise and the inability of consumers to declare bankruptcy. The mess blow up in the lenders’ faces anyway.
The same scenario is destined for Australia. Moreover, the bigger the bubble the bigger the bust. Australia’s bust will be staggering.
Mike “Mish” Shedlock
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Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.