The latest UBS study, the fifth in their series looking at lending standards, and based on a survey of around 900 home loan applicants reveals that (perhaps surprisingly) there was a rise in “porkys” being told as part of the mortgage application, despite the Banking Royal Commission.
As a result, more than a third of Australian home loans could have ‘liar loans’ based on inaccurate information.
UBS Analyst Jonathan Mott said:
While asking detailed questions appears to be prudent, it does not appear to be effective as many factually inaccurate mortgages are still working their way through the process.
Of the borrowers who said their application was not completely factual in the past year, 20 per cent overstated their income, 23 per cent understated debts, 34 per cent understated their living costs, and 23 per cent misstated multiple categories.
Now, this is consistent with the DFA surveys where true incomes and costs are often higher than might be expected. And the extra granularity now required by the banks (many categories of costs, more detail on incomes etc) can create a false sense of accuracy – especially when many households are making best guesses to provide information to support their applications.
And financial intermediaries still appear to be part of the story, with a higher percentage of borrowers who misstated information on applications through a mortgage broker (40 per cent) than through the banks (27 per cent).
UBS said that a “large number” of survey respondents indicated their mortgage consultant advised them to misrepresent elements of their application.
At a time when the mortgage growth stops are being pulled, and lower rates are expected in a highly competitive market, this will simply create a bigger bust later.
And remember that on an international basis, we are right at the top of the international benchmarks in terms of household debt.
In fact according to the latest BIS data we lead in terms of debt servicing ratios.
And the falls in prices have created a significant gap which highlights the risks in the system.
You can watch our recent show where we look at household debt in more detail including the data above.
We look at the latest stats to compare Australian household debt with a battery of other countries. Not pretty. given the drive to encourage people to borrow yet more….
John Adams and Martin North discuss the Mandurah situation with local council candidate James Yates.
He confirms our original analysis of the dire social issues facing many in the area, and outlines his platform to help turn things around.
Note that IOTP is not endorsing any particular candidate, but we wanted to underscore the seriousness of the issues in play, which many at the state and federal level appear to ignore…
James can be found at https://www.facebook.com/jamesyates.cw/
Thomas Cook was ordered into compulsory liquidation on Monday morning (Australian time) after it became apparent a deal to save the debt-written tour operator could not be reached, via AAP.
Thomas
Cook’s financial woes have mounted in recent months, culminating in a
refinancing plan in August led by its biggest shareholder, Chinese
company Fosun.
“Banks, including RBS and Lloyds,
insist the firm comes up with the new contingency funds in case it needs
extra money during the winter months,” the BBC said.
The
embattled company had earlier made a last-ditch appeal for a British
government bailout and was in emergency talks with its creditors amid
reports it would go into administration unless it secured an extra £200
million pounds ($A369 million).
Up to 600,000 travellers have been left stranded after the failure of
last-minute talks to save the world’s oldest travel company.
Richard Moriarty,
the chief executive of Britain’s Civil Aviation Authority, said the
government had asked his organisation to launch “the UK’s largest ever
peacetime repatriation”.
“Thomas Cook Group, including the UK tour operator and airline, has ceased trading with immediate effect,” the CAA said.
“All Thomas Cook bookings, including flights and holidays, have now been cancelled.”
Tourists were already reporting problems. Guests at
a hotel in Tunisia owed money by Thomas Cook told journalists they had
been asked for extra money before they were allowed to leave.
The company runs hotels, resorts, airlines and cruises for 19 million people a year in 16 countries.
It currently has 600,000 people abroad, forcing governments and insurance companies to coordinate a huge rescue operation.
Britain’s
Department for Transport said all Thomas Cook customers overseas who
were booked to return home in the next fortnight would be brought home
as close as possible to their booked return date.
British
Transport Secretary Grant Shapps said dozens of charter planes, from as
far afield as Malaysia, had been hired to fly customers home free of
charge and hundreds of people were working in call centres and at
airports.
The government and CAA were working round the clock to help people, he said.
The CAA’s dedicated website for the company’s customers crashed shortly after the announcement.
Thomas
Cook chief executive Peter Fankhauser said his company had “worked
exhaustively” – and ultimately fruitlessly – to salvage a rescue
package.
“Although a deal had been largely agreed, an additional
facility requested in the last few days of negotiations presented a
challenge that ultimately proved insurmountable,” he added.
“It is a matter of profound regret to me and the rest of the board that we were not successful.
A
million customers will also lose future bookings, although with most
package holidays and some flights-only trips protected by insurance,
customers who have not yet left home will be given a refund or
replacement holiday.
British health-care conglomerate Bupa runs more nursing homes in Australia than anyone else. We now know its record in meeting basic standards of care is also worse than any other provider. Via The Conversation.
This is more than a now familiar story of a corporation putting
shareholders before customers. It is also about another abysmal design
failure in regulation.
Health care is meant to be one of our most regulated sectors. In this
case, Bupa’s facilities were inspected and certified by the Aged Care
Quality and Safety Commission.
The regulator’s inspectors found 45 of Bupa’s 72 nursing homes
failed health and safety standards. In 22 homes the health and safety
of residents was deemed at “serious risk”. Thirteen homes were
“sanctioned” – with government funding being withheld and the homes
banned from taking new residents.
Yet none of this appears to have spurred Bupa’s management into action, according to media reports.
Flurries of inspection reports and written warnings over months and
years only underlined that the regulatory tiger, even if it had teeth,
had a very soft bite.
Responsive regulation
We have seen examples of equally insipid regulation in other areas.
In the building sector, for example, a range of regulatory flaws
including outsourced building certification have led to shoddily built and dangerous apartment construction.
In the financial sector, the banking royal commission castigated the
industry regulators – the Australian Securities and Investments
Commission and the Australian Prudential Regulatory Authority – for
their unwillingness to enforce rules.
“The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct,” noted royal commissioner Ken Hayne. “The prudential regulator, APRA, never went to court.”
This failure is due to more than individual agency shortcomings. It’s
an unintended consequence of the design of “responsive regulation” –
the system that has superseded command-and-control regulation over the
past three decades.
Responsive regulation was popularised by Australian sociologist John
Braithwaite and American law professor Ian Ayres in the early 1990s. It
was intended to overcome the pitfalls of the command-and-control model,
which involved regulators employing large numbers of inspectors to look
for non-compliance.
From about the 1970s it had become increasingly evident this model
wasn’t working. It was also very expensive. Consider, for example, the
cost of having fire and health and safety inspectors visit every single
building site, particularly when most builders were doing the right
thing. The cost and intrusiveness of the system fuelled calls to do away
with regulation .
Too big to fail
Ayers and Braithwaite saw their model as a way forward.
“Responsive regulation is not a clearly defined program or a set of prescriptions
concerning the best way to regulate,” they explained. “On the contrary, the best strategy is shown to depend on context, regulatory culture and history.”
Responsive regulation assumes that in most cases the enterprises
being regulated are interested in compliance and will respond to
light-touch directives. It assumes that often compliance failures are
due to ignorance or inadequate procedures. Its approach is to give
parties a chance to amend their ways.
But there’s a potentially huge flaw in the responsive regulation
model. What happens when an organisation is so large it is deemed too
big to fail, or deems itself so?
This seems to have been the case with a number of financial companies
whose misdeeds were exposed by the banking royal commission. It seems
it might have been the case with Bupa.
In such cases, because of the timidity of the regulator or the
confidence of the enterprise, the warnings might just go on and on. The
company continues to book its profits – which may well eclipse any
penalty it might have to pay if crunch time does ever come.
Markets have their limits
This design flaw highlights a more fundamental problem with
governments positioning themselves as rule makers and leaving the rest
to the “market”.
Markets are designed to facilitate exchange on the basis of profits.
The profit motive means market participants look for the lowest-cost
option. In aged care this means paying the lowest possible wages,
possibly to unqualified staff, and cutting corners to cut costs.
Markets are very useful for increasing individual choices and
efficiently allocating resources, but they are not suited to every task.
They fail when factors other than profit ought to be considered.
We therefore need to think about the design of regulatory systems more holistically, as part of a broader social process.
The pioneers of responsive regulation certainly understood this. They
emphasised flexibility, taking into account context, culture and
history.
What those three things now tell us, given widespread regulatory failure across industries, is that government should not resist stepping in to provide important public services where the private sector cannot or will not do so at an acceptable level. Nor should it be afraid to act through empowered regulators, with ressources and powers to fulfil their mandates.
Author: Author: Benedict Sheehy, Associate professor, University of Canberra
Today we continue the discussion of the latest findings from our rolling household surveys. Yesterday we over-viewed the segments, and trends, and looked at relative demand. Today we go deeper. The accompanying video explains our findings in more detail.
Want To Buy.
The 1.6 million Want To Buys are not able to progress because finance is not available (37%). This is been a growing issue in recent times, though has eased back, as pressure from cost of living (25%) and high home prices (25%) bite. Many therefore remain in rental property or in other living arrangements.
First Time Buyers.
There have been some changes in the drivers of purchase by the 350,000 first time buyers. Needing a place to live is high on the agenda (29%), but the expectations of future capital growth have dropped to 15%, while greater security remains around 15%. There is a rise in the use of First Owner incentives (13%).
However, availability of finance remains a significant barrier (39%) – though it dropped a little in response to lower rates and changed underwriting standards, along with high home prices (26%) and costs of living (24%). Fear of unemployment is on the rise (5%).
There has been a reduction in demand for units relative to houses, partly in response of the coverage of poor quality high-rise construction. We expect this to continue.
Refinancers.
There is a significant demand from those seeking to refinance an existing loan. The main aim is to reduce monthly repayments (48%), a factor which have become more important as financial pressures and mortgage stress build, helped by lower rates (18%). Around 18% are seeking to withdraw capital to repay other debts or improve their finances. Fixed rates are becoming less attractive (9%). Poor lender service is not a significant factor; price is.
Up-Traders.
Households looking to buy a larger property are driven by the desire for more space (41%), job move (16%), life-style change (20%), or property investment (22%), the latter dropping from recent highs of 43%.
Down Traders.
Those seeking to down size are mainly driven by the need to release capital, often for retirement, or supporting the “Bank of Mum and Dad” (50%). Around 30% are driven by increased convenience – either by changing location or to a more manageable property. A switch to an investment property has faded to 5% from a peak of 22% in 2017.
Property Investors.
Tax efficiency remains the strongest driver for investors (45%), while appreciating property values have dropped from more than 30% down to 15% now. Low finance rates have risen to 12% thanks to the recent changes and better returns than bank deposits registered at 25%. So investors believe the tax breaks make investing a reasonable proposition (though many would find in net cash flow terms they are underwater, without significant capital gains).
The main barriers are difficulty in obtaining finance (40%), have already bought (30%), and changes to regulation (15% – and falling now). Fears of interest rate rises have dropped from 11% in March 2019 to 1% now and the local and international economic scene has changed.
In the accompanying video we look in more detail at the differences between Solo Investor, Portfolio Investor and Super Investor motivations.
Finally, its worth noting that across the segments, when choosing a mortgage, price remains the main driver, though some segments rate other features a little more significant than others.
Prospective use of mortgage brokers also varies across the segments, with refinancers and first time buyers the most likely to use an adviser.
So, in summary, households are reacting to the changing market and economic conditions. However there is little here to suggest a significant upswing in demand.
We now know the Bureau of Statistics did quite a bit of
soul-searching before producing the bland and ultimately misleading
press release headed “Inequality Stable Since 2013-14” last month.
Late last week we pointed to the odd way in which the release included no data to back up the claim, and how journalists from the ABC and Sydney Morning Herald and Age quickly discovered the statistics it purported to summarise actually showed wealth inequality climbing.
On Wednesday in The Guardian,
Paul Karp revealed the contents of documents released under freedom of
information laws that shed light on the creation of the press release.
An earlier draft had pointed to a “significant increase” in wealth inequality compared with 2011–12 and 2003–04.
The phrase “significant increase” didn’t survive the editing process.
A reference to a measure of wealth inequality being “at its peak”
since it was first comprehensively measured in 2003-04 was also removed
after a direction to “focus on income over wealth”.
Another email noted there has been “a significant (downward) change”
in the wealth share of the bottom fifth of households, but added: “I’m
not sure that we want to draw attention to this though??”
The Bureau responded to the Guardian article on Wednesday, saying it
had not attempted to misrepresent the data, and that it prepared the
press releases “internally with no external influence”.
It’s not only the Bureau of Statistics that has found it difficult to draw attention to increasing wealth inequality.
In August last year the Productivity Commission released what it called a stocktake of the evidence on inequality, titled “Rising Inequality?”.
It wasn’t so much a “stocktake of the evidence” as a showcase of new
specially assembled evidence that conflicted with a wider body of
evidence that shows wealth inequality increasing.
The Commission’s contribution presented the wealth shares for the top 10% of Australian households only.
These came not from publicly available data, but from “confidential
unit record files” made available to approved users by the Australian
Bureau of Statistics.
We have presented the microdata in its raw form below, alongside four other well-established and widely published series.
The striking feature is that every line except the Productivity Commission’s shows inequality increasing since 2011.
The data from both Credit Suisse (on which Oxfam bases its research) and the Evatt Foundation
suggest that the top 10% now own more than half the nation’s household
wealth, and the Organisation for Economic Co-operation and Development’s
47.2% is just a little less.
The Productivity Commission is an outlier in finding the top 10% own
closer to 40%. Its finding that the share has been falling between
2013-14 and 2015-16 makes it even more of an outlier.
Beyond the bland headline, the latest statistics from the Bureau confirm our analysis of growing wealth inequality.
The Commission’s results are implausible
Our suspicions were aroused when the Productivity Commission’s
results appeared to be incompatible with the Bureau’s published
findings, of which they were a subset.
The Bureau’s data showed the share of wealth held by the top 20%
climbing, while the Commission’s series showed the share held by the top
10% falling – implying that the share of the next top 10% must have
been climbing quite a lot.
The divergence strained credulity. There are no advantages in
accumulating wealth that apply to households in the second top decile
that do not apply with at least equal force to those in the top decile.
Without an outside explanation (such as an extra tax applying only to
the top 10%) the result is so improbable as to seem impossible.
Other data available from the Bureau at the time showed that the
ratio of the wealth of households 10% from the top to the wealth of
those 10% from the bottom had climbed, while at the same time the
Commission found the wealth share of the top 10% overall had fallen.
Unfortunately, the Commission gave pride of place to its own findings
over and above more conventional findings, and used a question mark in
the title of its paper “Rising Inequality?” to imply that it might not be.
As we wrote here last week, wealth inequality and its effects matter. Australians need the truth about how much it is growing.
Authors: Christopher Sheil, Visiting Senior Fellow in History, UNSW; Frank Stilwell, Emeritus Professor, Department of Political Economy, University of Sydney
Digital Finance Analytics will be releasing the results from our rolling household surveys over the next few days. This is the first in the series.
These are the results from our 52,000 households looking at property buying propensity, price expectations and a range of other factors.
We use a segmented approach to the market for this analysis, and in our surveys place households in one of a number of potential segments.
Want To Buys: households who would like to buy, but have no immediate path to to purchase. There are more than 1.5 million households currently in this group.
First Timers: first time buyers with active plans to purchase. There are around 350,000 households in this segment.
Up-Traders: households with plans to buy a larger property (and sell their current one to facilitate the up-sizing. There are around 1 million households in this group.
Down Traders: households wishing to sell and down size, sometimes buying a smaller property at the same time. There are around 1.2 million households in this group.
Some of these households will hold investment property as well. We categorise investors into one of two groups.
Solo Investors: households with one or two investment properties. There are about 940,000 of these.
Portfolio Investors: households with more than two investment properties. There are around 170,000 of these.
Finally we also identify those who are planning in refinance existing loans, but are not intending to buy or sell property – flagged as Refinancers, and those with no plans to buy, sell or refinance – flagged as Holders.
It is the interplay of all these segments which drives the property market and demand for mortgages.
Around 72% of households are property active – meaning they want to buy, sell, or own property. More than 28% are property inactive, meaning they rent, live with parents or in other arrangements. Our surveys track all household cohorts. A greater proportion are falling into the inactive category.
Intention To Transact Is Rising (From A Low Base)
We ask about households intentions to transact in the next 12 months, and whether they will be buy-led (seeking to purchase a property first) or sell-led (seeking to sell a property first). (Click on Image To See Full Size).
Property investors are still coy (hardly surprising given the fall in capital values, the switch to P&I loans and receding rentals. But Down Traders, First Time Buyers and Refinancers are showing more intent.
We will look at the drivers by segment in a later post.
But the Buy Side and Sell Side Analysis is telling
Those seeking to buy are being led by First Time Buyers and Down Traders.
Those looking to sell are being led by the Down Traders, and Property Investors. In fact this suggests we will see a spike in listings as we move into spring.
Our equilibrium model suggests that currently supply is not meeting demand (adjusted for property types and locations) in a number of prime Sydney and Melbourne locations, within 30 minutes of the CBD. But beyond that demand is below current supply, and more is coming.
On this basis, we expect to see some local price uplifts, but not a return to the rises a couple of years back. What is clear, is that the property investment sector continues to slumber, and Down Traders are getting more desperate to sell.
Finally, today demand for more credit is coming from Up-Traders, First Time Buyers and Refinancers. Not Investors.
And price expectations seem to be on the improve, driven by investors. But it is still lower than a couple of years ago.
Next time we will dive into the segment specific drivers.
Between 1987 and 2015, average real mortgage debt among older Australians (aged 55+ years) blew out by 600 per cent (from $27,000 to over $185,000 in $2015), while their average mortgage debt to income ratios tripled from 71 to 211 per cent over the same period, according to new AHURI research.
The research, Mortgage stress and precarious home ownership: implications for older Australians, undertaken for AHURI by researchers from Curtin University and RMIT University, investigates the growing numbers of older Australians who are carrying high levels of mortgage debt into retirement, and considers the significant consequences for their wellbeing and for the retirement incomes system.
‘Our research finds that back in 1987 only 14
per cent of older Australian home owners were still paying off the mortgage on
their home; that share doubled to 28 per cent in 2015’, says the report’s lead
author, Professor Rachel
ViforJ of Curtin University.
‘We’re also seeing these older Australians’ mortgage debt burden increase from
13 per cent of the value of the average home in the late 1980s to around 30 per
cent in the late 1990’s when the property boom took off, and it has remained at
that level ever since. Over that time period, average annual mortgage
repayments have more than tripled from $5,000 to $17,000 in real terms.’
When older mortgagors experience difficulty in meeting mortgage payments,
wellbeing declines and stress levels increase, according to the report.
Psychological surveys measuring mental health on a scale of 0 to 100 reveal
that mortgage difficulties reduce mental health scores for older men by around
2 points and an even greater 3.7 points for older women. Older female
mortgagors’ mental health is more sensitive to personal circumstances than
older male mortgagors. Marital breakdown, ill health and poor labour market
engagement all adversely affect older female mortgagors’ mental health scores
more than men’s.
‘These mental health effects are comparable to those resulting from long-term
health conditions,’ says Professor ViforJ. ‘As growing numbers of older
Australians carry mortgages into retirement the rising trend in mortgage
indebtedness will have negative impacts on the wellbeing of an increasing
percentage of the Australian population.’
High mortgage debts later in life also present significant challenges for housing
assistance programs. The combination of tenure change and demographic change is
expected to increase the number of seniors aged 55 years and over eligible for
Commonwealth Rent Assistance from 414,000 in 2016 to 664,000 in 2031, a 60 per
cent increase. As a consequence the real cost (at $2016) of CRA payments to the
Federal budget is expected to soar from $972 million in 2016, to $1.55 billion
in 2031. The unmet demand for public housing from private renters aged 55+
years is also expected to climb from roughly 200,000 households in 2016, to
440,000 households in 2031, a 78 per cent increase.
There are also challenges for Government retirement incomes policy. The burden
of indebtedness in later life is growing; longer working lives and the use of
superannuation benefits to pay down mortgages are increasingly likely outcomes.
