Mortgage madness in China, and some interesting results from a shadow shopping exercise at home.
You know, sometimes when I’m complaining about council planning hoops, or another form to prove to the bank how fat my wallet is, I lift my eyes and look at what’s happening in other places around the world.
… like in China.
In some of the outer-provinces, women are being asked to hand over nude photos of themselves if they want a mortgage. Rather than any real collateral, they have to accept being blackmailed if they fall behind on their repayments.
The Financial Times has the story…
“Chinese loan sharks are demanding nude photos as collateral from female borrowers which can be used for blackmail if they fall behind on their repayments.
The aggressive tactics are an example of the drastic debt recovery measures that are being employed in the slowing Chinese economy.
The democratisation of finance in China via peer-to-peer lenders and the vast shadow banking system, with interest rates sometimes topping 30 per cent, have proved an inflammatory mix and fuelled a surge in souring loans.
Female college students in the southern province of Guangdong were told to hand over naked photos of themselves holding their ID cards, with lenders threatening to make them public if they failed to repay their loans, according to the Nandu Daily, the local newspaper.
…Blackmailing with nude photos joins a long list of threats including property destruction and bodily injury committed by loan sharks attempting to collect unpaid loans.”
Because you can trust a loan-shark to hand back nude (digital!) images of yourself after you’ve paid back your loan. Oh man.
This is why we need a regulated banking sector. Banking isn’t just something nice to have around the place. It’s an essential service – like water and sewage.
If you think that comparison’s extreme, imagine an economy with no credit and financial intermediation. Things come to a grinding halt pretty quickly.
And when you’re providing people with credit, just as if you were providing them with water, you hold a lot of power over them.
Power always corrupts, and so if there is a role for government (and I’m a fan of fewer roles than more), then there’s a role in making sure that bankers aren’t turning mortgage applications into cheap porn.
(Just another reason why it’s great to be an Aussie. And let’s keep it that way. Let’s get that Banking Royal Commission up and running, hey?)
Anyway, while we’re talking banks and mortgage applications, I thought this shadow-shopping exercise was interesting.
MacQuarie Bank’s secret agents were hitting up mortgage brokers across the country in June, to see what banks actual attitudes to investors and owner-occupiers were.
The results show that the APRA chill is still in effect. On average, they found that banks were willing to lend 10% less than they were a year ago.
Where’s your bank of choice in the mix?
There were some pretty drastic reductions in maximum lends to the investor class:
While reductions to owner-occupiers were less drastic but more consistent.
The June to June measure is a little misleading, since the APRA chill took effect a little earlier than June 2015, especially for CBA and WBC. Still, over all the message is clear – APRA is still squashing mortgage finance, and that’s going to weigh on the market.
There were a couple of other interesting things to note.
Despite the chill, Mac Bank still found the more aggressive lenders were prepared to lend 9.4x income for investors and 6.2x for owner-occupiers. To them, this still seems a tad aggressive, and might prompt APRA into more action.
Mac Bank also compared Australian borrowing capacity to some international peers. They found that Canadian lenders had broadly similar lending practices, but lenders in the UK and the US appeared to be more conservative. Overall, our banks have a relatively voracious appetite for investor lending.
Mac Bank then adjusted for the impact of growth in lending to offshore investors and offset balances, and estimate that it looks like mortgage growth across the majors was around 3-5%.
This is interesting, when you remember that the line APRA drew in the sand – albeit for investor lending – was 10% a year. That suggests that mortgages are growing well below the regulatory ceiling, suggesting that APRA is applying a bit of soft pressure.
“Rein it in boys, or we’ll get out the stick again.”
That suggests that the sluggish tone of the property market could be deeper and continue for longer than we expected.
For example, on the back of these results, Mac Bank are expecting house price growth of 4.5% in FY17, and 4% in FY18.
That a fair sight slower than some of the recent paces we’ve seen, but not too bad overall. Especially when you remember where interest rates are.
Mac Bank’s shadow shopping exercise also found that the average level of discounting was 140 basis points, with rates of 4% being available to owner-occupiers, 4.27% to investors.
(I wonder if I can get a further discount if I send them a picture of my wang…)
And I still expect at least one more rate cut this year…
So one the whole, the APRA chill is still in effect, and it’s looking like it’s a little more severe than the official numbers are saying. That said, mortgage books are still growing, and price growth overall should remain solid.
Of course, state by state, city by city, and suburb by suburb results will vary. Still it’s a good read of where momentum is going.
Does Mac Bank’s shadow shopping exercise line up with your experience?
Where is momentum going?
What are you doing to take advantage of that?