Tag: Mortgage Industry

A 10-Year Segmented View Of The Mortgage Book

Within our household surveys, we record the date when a mortgage was drawn down. This provides a useful perspective of how long the mortgage was been on book. Applying a segmented view of this data offers an interesting perspective on the market.

In this view we have taken data from the past 10 years, and applied our master household segmentation to reveal the distribution of gross balances across the 10-year period.

Well over 20% of all loans in the entire portfolio, by value were written last year. In 2016, 29% of loans were written by young affluent households, 18% by exclusive professionals, 11% by suburban mainstream and 9% by young growing families.

Interestingly, the average loan written in 2016 for our exclusive professional segment was $1,163,950, compared with $691,843 from the young affluent segment, $428,156 for young growing families, and $163,764 in the battling urban segment. This illustrates the greater leverage in the more affluent sectors, which is why they are more exposed to potential rate rises, as we discussed yesterday.

It also again highlights the power of effective segmentation!

A Deep Dive On Household Rate Sensitivity

Today we look at a Interest Rate Sensitivity – a specific slice of data from our household surveys which we use to drive the mortgage stress data series, as we discussed recently.

Using data from our surveys we are able to estimate the amount of headroom households would have if mortgage interest rates were to rise. We are expecting rises through 2017.

We look at a range of scenarios, and as rates rise estimate the “pain point” for specific households, taking into account their other commitments, income, type of loan and mortgage repayments. Today we look at owner occupied loans.

Looking at sensitivity by age of household, more than 65% of those under 40 years with a mortgage would have difficulty if rates rose just 0.5% (50 basis points).  Households who are older, on average have more headroom. In the “more than 7%” category, 60% of households are over 40 years.

Another interesting cut is the penetration of Lenders Mortgage Insurance (LMI). Around half of households with an LMI protected loan (remember the LMI Insurance protects the BANK, not the Household) would have difficulty if rates rose bu 50 basis points. Households with no need for LMI (normally because they have a lower loan-to-value ratio) have more headroom.

We see from our property segmentation that a greater proportion of first time buyers would be caught if rates rose 50 basis points, but property holders are the largest segment at the high end of the risk profile.

A look at our master segments shows that young growing families and young affluent households are relatively the most exposed if rates rise. Interestingly our battling urban, and disadvantaged fringe groups (who would generally be regarded as the worst credit risk) have more headroom. This is because they have smaller mortgages, so are less leveraged.

By state, NSW have the highest proportion of households which would be exposed by a 50 basis point rise – again because of large mortgages and high home prices.  By comparison, households in QLD AND VIC have more headroom.  Some households in WA are also exposed at 50 basis points.

Finally, we also see that the majority of households we identified as in severe mortgage stress appear in the band who would be under pressure if rates rose just 50 basis points. This is a validation of our modelling, and shows the alignment between mortgage stress and rate movements.

A further illustration of the power of effective segmentation!

 

Bankwest Reveals New Mortgage Product

From Australian Broker.

Today Bankwest has launched a new home loan product which offers a discount against the combined average standard variable rates offered by three of the major banks.

The new Bankwest Equaliser Home Loan, which is available to both owner occupiers and investors, offers a fixed discount off the combined average standard variable rate of three major banks (ANZ, NAB and Westpac).

With a discount for three years of 1.35% p.a. for owner occupiers and 1.00% p.a. for investors and a floor rate of 2.5% p.a., Bankwest general manager of broker sales Stewart Saunders said the new product demonstrated Bankwest’s ability to innovate in a challenging market.

“The banking sector needs to continually innovate and adapt to customers’ needs in our fast changing world. Our new Equaliser Home Loan is designed to give brokers and customers a competitive home loan option they have been asking for,” said Saunders.

“With so much uncertainty in the markets – on a state, national and international level – this new home loan gives people peace of mind they’ll be getting a competitive rate.

“We’ve listened to what our brokers and our customers are telling us and we know there’s a demand for a simple, no frills home loan which offers competitive rates that align consistently with the major banks.

“This product isn’t meant to be a ‘hero product’ but addresses a growing segment of customers who are looking for certainty in competitive rates.

“The Bankwest Complete package remains a very competitive offer which gives a competitive life of loan discount.”

The new Bankwest Equaliser Home Loan offers a discount against the average standard variable rate of three major banks for three years and then reverts to a competitive life of loan discount off the Bankwest standard variable rate and is available for new loans over $200,000 borrowing up to 80% of the property value, with principal and interest repayments only.

Bank of Queensland Lifts Rates

BOQ today announced it will increase interest rates to most variable home loan products by 0.15% per annum.

The increase will see the Bank’s Clear Path variable rate home loan lift to 4.47% per annum for owner-occupiers and 4.94% per annum for investors. The Standard Variable rate home loan will move to 5.61% per annum for owner-occupiers and 6.08% per annum for investors.

BOQ’s Economy Home Loan rates for owner-occupiers and investors remain unchanged.

BOQ CEO Jon Sutton said the carefully considered rate changes will balance the needs of all stakeholders, including borrowers, savers and investors.

“We will continue to monitor our portfolio and pricing to ensure we get the balance right between growth and profitability,” Mr Sutton said.

“The current low rate environment brings its challenges for all lenders, particularly those with a high proportion of funding through term deposits, which remain at expensive levels.”
The new rates will be effective from 6 January 2017.

US Mortgage Rates Quickly Approaching 4.5%

From Mortgage News Daily.

Don’t believe anything you read about mortgage rates today… well, except this. In fact, you’re welcome to believe anything you read as long as it acknowledges the fact that rates have risen nearly a quarter of a point from last week, pushing them well into the highest levels in more than 2 years.  The average top tier conventional 30yr fixed rate is quickly approaching 4.5%.  Nearly every lender that was at 4.125% last week is now at 4.375%.  Lenders who were at 4.25% last week are mostly up to 4.5%.

The overall spike in rates since the election is now on par with the 2013 taper tantrum.  You’ll hear time and again “don’t worry… rates are historically low…” and my personal favorite “for every .125% in rate, the payment only rises $7 per $100k borrowed.”  All of that is true, except perhaps for the “don’t worry” part.  Some borrowers may need to worry about no longer qualifying due to debt-to-income guidelines.

Rates haven’t risen a mere .125%, after all.  That’s just today’s increase.  Added to recent losses, the damage is between .75 and 1.0% now.  Let’s take a more average loan amount of $250k and see what happens when the rate goes up 0.75.  The increase is over a hundred dollars a month.

Many of the people interviewed by financial journalists have a hard time relating to most of the people that will end up being exposed to their opinions.  $100/month may not sound like the end of the world to the CEO of some financial firm, but it is more than enough to tip the scales for prospective homebuyers.  They’ll have to adjust their price range at least $20k to get back to the same payment.  If that’s not an option for the area, then they’re no longer a prospective homebuyer, or they’ll be forced to move out of the area.  This dynamic is not congruent with “not worrying.”

Oh, and you’ll also need to worry if rates will continue to move higher.  That’s possible, although for technical reasons, the higher rates go, the more challenging it will be to continue higher.  It’s also possible that markets are riding on a cloud of optimistic euphoria and that the cloud will dissipate as the new year begins.  It’s possible this rise in rates is a necessary ingredient in longer term trends.  In other words, rates have to rise so they can fall again.  Last but not least, it’s possible I don’t know everything and rates will go much higher than they are currently, but if that happens, it will increasingly have consequences for the economy.

Advantedge to increase rates for variable loans

Advantedge Financial Services (Advantedge) is increasing its interest rates for all variable rate loans by 0.10% per annum.

The new rates will apply to all of Advantedge’s white label partners, and will come into effect from Tuesday 24 January 2017.

Brett Halliwell, General Manager of Advantedge, said Advantedge remains committed to providing aggregators and brokers with the best possible products in Australia’s dynamic home loan market.

“Our white label products are simple, high-value and flexible, and continue to be highly competitive. This rate change is needed due to the challenging economic environment, increased regulatory requirements, and financial market conditions that we, and all lenders, are facing,” Mr Halliwell said.

Advantedge is part of the National Australia Bank Group (NAB) and is Australia’s leading wholesale funder and distributor of white-label home loans.  

Advantedge supports mortgage brokers and mortgage managers with end-to-end loan processing and administration support. From pre- to post-settlement stages, Advantedge also gives brokers access to a personalised lending team that prides itself on excellent service.

White label loans are an alternative to major bank loans, designed to give customers the essential home loan features they need, at competitive rates. Through Advantedge customers have access to simple, quality home loans that’s easy to manage and offers value.

White-label home loans are available through just over 85% of Australia’s mortgage brokers, and distributed under the brands of mortgage aggregators and mortgage managers. Those mortgage aggregators include PLAN Australia, FAST, Choice Aggregation Services, Australian Finance Group, Connective, Smartline, Astute, Loan Market and LJ Hooker Home Loans

Bendigo Bank’s Lifts Variable Home Loan Rate

Bendigo Bank has said it has decided to increase its residential mortgage variable interest rate by 0.10% p.a. to 5.48% p.a. for owner occupied and 5.76% p.a. for investor loans.

Bendigo and Adelaide Bank Managing Director Mike Hirst said the adjustment reflects that recent ultra-competitive mortgage pricing is unsustainable.

“The cost of funding these loans through both retail deposits and wholesale term debt is rising. Global financial markets have been volatile and this is impacting the cost of raising funds domestically as competition for stable deposits increases,” Mr Hirst said.

“Even after this change, the vast majority of our borrowers pay well below the standard residential mortgage variable interest rate, and at rates which are a far cry from the 7.8% percent interest rates seen in November 2010.

“When setting these rates we’ve tried to carefully balance the interests of these mortgage customers, those who earn money through deposits and those who invest in our Bank,” he said.

Customers on a residential owner occupied variable interest rate with a $250,000 loan will see their repayments increase by $15.63 a month (principal and interest home loan over 30 years).

The adjustment is effective 15 December 2016 for new and existing loans.

Investment Loans Stronger In October

The latest housing finance statistics from the ABS, to October 2016 shows continued growth in investment mortgage lending, whilst owner occupied momentum slowed. In the month and in trend terms, $32 billion on new loans were written, up 0.25%. Within that, owner occupied flow fell 0.5% to $19.7 billion, whilst investment loans grew 1.5%, to $12.5 billion. Investment lending comprised 33.8% of all loans, up from 33.3% the previous month.

33.8% of owner occupied loans were a refinance of existing loans. 12.8% of loans were fixed rate, up from 11.2% last month – reflecting the low rate fixed offers which were available at the time.

Looking at the segmentals, owner occupied lending for construction rose 0.06% to $1.8 billion, purchase of new dwellings fell 0.17% to $1 billion, refinance of established dwellings fell 0.74% to $6.6 billion and purchase of established dwellings fell 0.5% to $10.2 billion.

On the investment side of the ledger, construction of new investment dwellings fell 0.46% to $842 million, purchase of property for investment by individuals rose 2.11% to $10.6 billion and purchase by other investors rose 0.45% to $1 billion.

Looking at ADI loan stock, in original terms, total loans grew by 0.61% in the month, up $9 billion. Investment loans rose 0.5% or $2.7 billion and owner occupied stock rose 0.67% or $6.7 billion.

Turning to first time buyers,the volume of new owner occupied loans to first time buyers remained around 7,300, but because the number of non-first time buyers fell, it rose to 13.7% of all loans, up from 13.1%. The average loan size for first time buyers rose to $327,000, up 1% from last month, whilst the average non-first time buyer loan is $380,000, up 1.6%.

Looking at the DFA survey data we saw a slight fall in the number of first time buyers going directly to the investment sector, but another 4,000 joined the property investor ranks in the month.

Finally, looking at the state-based data in trend terms, the largest falls in owner occupied loans were in NSW (down 1.2%) and ACT (down 2.1%). Tasmania was the only state to see a rise – up 0.7%.

 

Mortgage rates on the rise in bank Christmas cheer

I spoke with the ABC’s senior business correspondent Peter Ryan today about the future trajectory of mortgage interest rates in Australia for the AM Breakfast Programme.

The US Treasury Bond Yield continues higher, lifting capital market funding rates globally. The local banks are reliant on these markets. Whatever may happen to the RBA cash rate, mortgage rates and borrowing rates for small business are going to rise.

NAB residential investor home loan variable interest rates to change

NAB has said it will increase its variable rates on new and existing residential investor home loans by 0.15% per annum, effective from Monday 12 December 2016.

nab-pic

This will mean NAB’s Variable Rate for Residential Investment Home Loans will be 5.55% per annum.

There is no change to NAB’s Variable Rate for Home Loans (Standard Variable Rate) for owner occupier customers, which remains at 5.25% p.a.

NAB Chief Operating Officer, Antony Cahill, said NAB takes a disciplined approach to managing its entire portfolio, and needs to make adjustments to ensure it continues to lend responsibly and sustainably to all customers.

“We don’t make these decisions lightly, and these changes reflect the increasingly challenging environment we are currently operating in as we seek to meet the needs of all our customers and our shareholders,” Mr Cahill said.

“As was evident during the recent bank reporting season, net interest margins – the difference between what we pay to borrow funds to lend to our customers and what our customers pay – are down, particularly in home lending, and they remain under pressure.

“A low-rate environment poses considerable challenges to all lenders, and we must respond to what is happening in the economy and the market. In doing so, we have to consider a range of factors including the ongoing need to hold longer-term stable sources of funding, continued elevated funding costs, regulatory requirements, and the competitive pressures at play.

“We will continue to regularly review our products and pricing, and make decisions that enable us to achieve a balance for all stakeholders – borrowers wanting to buy a home or grow their business, depositors and investors seeking a return on their investment, and our shareholders who rely on our dividends.”

Earlier this year, NAB made changes to the way it prices its home loans based on loan purpose and repayment type.

“We can now be more specific in how we manage our entire home lending portfolio in line with economic conditions and regulatory requirements,” Mr Cahill said.

He said the investor segment continues to be important to NAB, and interest rates for all home buyers are around their lowest levels in more than 50 years.

“NAB is committed to providing customers with great value and service, and home loan products that suit their needs at a competitive price,” Mr Cahill said.

NAB continues to offer highly competitive fixed rate terms, and borrowers seeking certainty about their repayments may want to consider fixing part or all of their home loan.

“Switching to a fixed rate loan is a straightforward and easy process, and I encourage borrowers to speak with their banker or broker to find out more about what’s available, and if a fixed rate home loan might be right for their circumstances.

“We’re here to help our customers as they make choices about which product may best suit their needs,” Mr Cahill said.

Conditions, fees and eligibility criteria apply to NAB’s products. Customers who want to know more about these changes are encouraged to contact their banker about what works best for them.