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?
Tom says
Rather than limit the proposed scrutiny to just the banking/finance sector, any Party wanting to win on July 2nd need simply promise to hold a Nation-wide Summit, as soon as possible, on the subject of setting up an INDEPENDENT ‘National ICAC’. This new organisation would be expected to have wide-ranging powers to investigate ANY organisation, which accepts money from the public or Government – suggesting in particular investigating donations to political parties!!! Designing it to provide reports and suggestions to Government regarding its major investigations would be handy.
The currently unmentioned elephant in the room, is the difference between the current proposals – that the Royal Commission would be able to investigate the operation of the current, inept, under-funded ‘Authority’, (which actually has potentially wider powers).
Any thoughts?
Jon Giaan says
totally hear you on a National ICAC, but when the players get to decide who the umpires are, it’s hard to get your hopes up…
Indy says
There are only two elements that are needed in this banking and real estate discussion. A barrel and a large jar of lube. We need the lube because it (apparently) reduces the pain somewhat while the banks are screwing those who are lying over the barrel. If you have a chance to fly around the western suburbs heading further west or south (Sydney I’m talking about) there is a stack of land available to develop as housing. The government only releases adequate amounts of land subject to what the banks have in their coffers at any particular time. So who is running real estate in Australia? And the way they keep a rein on things are, they direct the government (state) how to styme development proposals, the exorbitant costs attached to every block even though that particular state government has highlighted the area as a (wanting) growth area. This, with the right sort of media hype passed to them by the banks and gov would make you believe that there is nothing around to buy. That keeps the prices of built areas up and running and the lent mortgages safe.
There is so much land around close to the city centres it would make you cry. Anyway, I’m going to open a lube bar.
Jon Giaan says
i never knew that’s where the expression “to have you over a barrel” came from. Makes a lot more sense now…
Trevor says
I am in the process of getting ready to settle on an off the plan NSW property in Glenfield, which I signed up for three years ago. The amount of growth this property has seen over those three years is out of this world, so no complaints from me in that respect. The big gripe I have is that the valuations that are performed on properties used as security, are always so far under the comparable sales evidence in the area. In my case, the sales evidence for the same properties (with the same specs) that have been sold in the same complex, over the last 6 months, as each townhouse is completed, hovers around $599k – $620k. That being the case, why did the valuer come back with a valuation of $535k? I was also trying to release some equity in two WA investment properties but the same thing has happened. They don’t seem to take the sales data, which is surely the most accurate real time valuation figure you can get! These two properties are pretty much worth today, what they were worth 4 years ago, when I had to borrow funds to go to the US to purchase US property – I’m so glad I did that as the cash flow is great! The crazy thing is, back 4 years ago, the valuations came in at $122k and 67k more than what they have been valued at today, even though the sales market says they are worth the same today as they were 4 years ago! Where is the logic and accuracy in all of this? The income and expenses that the banks use when assessing your loan application is also the biggest legal fraud (an oxymoron??) I have ever seen. If they can take everyone’s monthly expenditure, provided by the applicant with proof and basically turn around and say that they use a general $3,000 a month figure, then isn’t that fraud by fudging the figures? The banks got into trouble when they put an extra 0 on the incomes of applicants when they wanted to drive loan business previously, so how is this different? Apparently, that is APRA sticking their unwanted hooter in once again, from what my broker told me. They do the same with the income that you give them – always coming up with excuses as to why they can’t use the full rental income, or a paid overtime that is regular etc. I know they have to factor in risk, but they already do this by adding a couple of percentage points on the interest rate. If they have to destroy your income figure by reducing the surplus amount left over every month, then it is like being double taxed! The whole system of applying for a loan and the ridiculous valuation amounts and figures they use on the application, are total BS. If we are going to have investigations and regulations imposed on the banks and their conduct, then please start with these two areas. These crazy rules and regulations are crushing the dreams of people that have worked over the years, to build up their portfolios, equity and income, by strangling the life out of really good property propositions/deals before they get a chance to get off the ground. Just be fair for heavens sake and judge every applicant and property purchase/loan on its merits. I won’t be bothering to try and purchase more Aussie property until APRA and the banks pull their finger out and stop interfering with the process. Until then, I will concentrate on the US and the lovely cash flow I am getting, rather than shelling out four – six times in capital to buy neutrally, or negatively geared Australian properties. They wanted to reduce lending for investment properties, well they are getting it from me! Just don’t expect me to run straight back to investing in Australia, when the tide turns. yes, I am talking to you, Banks and APRA!