We have now finished updating the DFA market model, to take account of the latest DFA survey data, and market data. So we can look across specific households, segments and locations. Specifically we have been looking at average loan to income (LTI – income after tax but before interest) and loan to value (LVR – current outstanding loan compared with marked to market property value. The data covers all outstanding loans, not just new loans. The results are fascinating. This analysis is focusing on owner occupied property, though we also have rich data on investment property, and we may come to this later. This should help to answer the question, recently posted to DFA, where are the highest LVR and LTI areas? The DFA model has more then 100 elements, so we are just pulling out a few relevant items for this post.
To start, we look at the state summaries. We see that the highest LVR (orange line) can be found in the ACT, whilst the highest LTI is in NSW. The former is explained by the concentration of low risk salaried public servants in Canberra, and high house prices relative to income in Sydney.
Using the DFA property segmentation, we see that the highest LVRs on average sits with first time buyers and is above 80%, whilst those trading up have an average below 60%. On the other hand, LTIs are on average, more stretched for households other than first time buyers (as we will see later there are wide variations), whilst other segments have higher LTI, reflecting falling incomes and other factors, including loan draw-downs and recent refinancing.
If we then look across all the locations, we see LVR’s above 93% on average in places like Stawell (Horsham (west), VIC; Jarrahdale (Tangney), WA; Merbein (Vic Country (north), VIC; and Badgingarra (Kalgoorlie) WA. The highest LTI ratios are in Ultimo (Sydney) NSW; Barnawartha (Wangaratta (north East)), VIC; and Matraville (Sydney) NSW. The average LTI does vary significantly, from just over two time income to nearly eight times.
If we then dive more deeply into NSW, the top LVR ratios are found in Ultimo, Edmondson Park, Matraville and Northmead. High LTI ratios are found in Ultimo, Alexandria, Holsworthy and Roselands. So from a potential risk perspective, Ultimo has the highest score attached to it at the moment in the state. There are many new buildings going up there of course, mostly high-rise apartments, coupled with high turnover and competition between owner occupiers and investors.
Finally, for today, we map the top LVR’s in Sydney. We see significant high LVR mortgages in the eastern suburbs, as well as the inner west, southern, north western and western areas. In this map we cut off data below 78% LVR.
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