Country Report
The mortgage loan industry in Australia has been seeing negligible
growth:
T
he mortgage market in Australia has
been seeing hard times. Credit growth
in the sector has been negligible and
over the whole of 2018, credit for property
purchases dipped to 4%, the weakest result
on record. Loans extended for property
investment have fallen sharply over the past
year. Credit for owner-occupier property
purchases also remained weak and the
annual increase was the smallest since
September 2015. Experts attribute several
reasons for the pronounced slowdown, the
main ones being a higher proportion of
borrowers with amortizing loans, reduced
property turnover and weak demand given
ongoing declines in home prices.
An S&P Global Ratings report recently
said the Australian residential mortgage-
backed securities (RMBS) sector, which so
far has been relatively resilient to pressure,
with mortgage arrears remaining low and
ratings performance stable, is now facing
elevated risk than it was 12 months ago.
“Alongside, high household debt and low
wage growth are emerging risks such as
lower seasoning levels in new transactions
and increasing competition. Digital
disruption is set to change the competitive
landscape in Australia, with comprehensive
credit reporting (CCR) and Open Banking
on the doorstep. Stakeholder expectations
are also altering credit profiles, with
regulators now the dominant force shaping
underwriting decisions. The RMBS sector
is well placed to weather disruption and
economic change, but there is no room for
complacency,” says the report.
VARIOUS TYPES OF LOANS
For most people in Australia, buying a home
will not be possible without help from banks
and home loan providers. Even those who
invest in housing for investment purposes
depend on banks. So, Australian mortgage
market has a variety of loan providers to
the extent that home buyers have hard time
picking up the best. The different types of
loans that are available for home buyers in
the country are:
Variable Rate Loans, which rely on the
Reserve Bank of Australia’s ever-changing
cash rates, and the subsequent fluctuation
of interest rates.
Fixed Rate Loans, which lock in
the interest rate for a period of 1-5 years,
generally at a rate above the current variable.
Interest Only Loans, where one pays
for the interest only, minus the principal –
for the meantime.
Guarantor Loans where one can ask
a relative to be the guarantor and use a
portion of his home as a security blanket
for the mortgage.
Low Doc Loans are meant for
freelancers, business owners, or self-
employed people who don’t have some of
standard papers.
Line of Credit Loans are meant for
renovations to houses. These loans are also
known as ‘home equity loans’.PUSH FROM GOVT
If a person in Australia is buying a home
for the first time, he is eligible for the
First Home Owner Grant. This includes
migrants with permanent residence who
have already owned a house elsewhere.
The applicant is paid the First Home
Owner Grant directly. However, the grant
is not available for land purchases. In most
states, there are house price caps on grantsand there may be further restrictions such
as the property being your primary home.
Reverse mortgages are also popular in the
country. There is provision for all citizens over
66 years of age to take a reverse mortgage.
But, the regulator, Australian Securities
and Investments Commission did some
investigations and found that the lenders
were failing to properly educate consumers
about the risks of the loan. Just 5 banks
originated 99% of all reverse mortgages in the
last 2 years but 2 of these banks have stopped
offering reverse mortgages.INTEREST RATES
The interest rates for home mortgages are
competitive. The Australian Prudential
Regulation Authority has allowed lenders
to change the way they assess customers’
ability to meet repayments and set their
own minimum interest rate floor and
make their calculations using a 2.5% buffer.
That means borrowers on a typical 4%
mortgage rate can expect to be assessed at
6.25% rather than 7.25%, enabling them to
immediately secure larger loans.
Some of the leading players in the
mortgage loan segment in Australia are:
loans.com, Athena, UBank, Macquarie,
Newcastle Permanent, TicToc, Homestar,
Heritage Bank, Hunter United and HSBC
[email protected]Australia has a sluggish mortgage market
Residential apartments in suburban Sydney