Australia Mortgage Defaults Storm

Discussion in 'Economics' started by Stockolio, Feb 8, 2019.

  1. Australia along with UK is facing a Lehman 2.0, it seems Australia might take the crown for this recession in terms of mortgage defaults and housing collapse.

    There IO Loans ( Interest-Only ) is gonna absolutely destroy them, few links explaining the situation unfolding in Australia for 2019 going forward, was years in the making.

    UBS says the stress will come when IO loans mature and revert to principle and interest (P&I) loans when repayments jump, according to a report in the Australian Financial Review.

    It is estimated that there are 1.5 million borrowers on IO loans worth nearly $500 billion which will convert to P&I loans over the next four years.

    According to ASIC’s mortgage calculator, borrowers on an IO loan of $300,000 at 4% interest is likely to see their monthly repayments jump from around $1,000 to circa $1,700 (the longer your IO loan is for, the greater the increase when it converts to P&I).

    In case you missed it, that’s a 70% increase in mortgage repayments and that’s not factoring in an increase in interest rates.

    This probably explains why UBS believes 18% of respondents to its 2018 mortgage survey won’t be able to meet their monthly repayments when their IO loan rolls over. That equates to around 270,000 defaults just on IO loans.

    Throw in falling property prices, and this default estimate might prove to be somewhat conservative. We’ve already seen almost all banks, including our two biggest mortgage lenders Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), lift rates independent of the Reserve Bank of Australia.

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  2. JSOP


    As long as they don't have derivatives and n-degree derivatives underwritten based on those mortgages, the problem would still be contained. If they are concerned about the sudden reversion from interest-only to principal+interest, what they can do is a gradual reversion that starts earlier people are gradually starting to pay down their principal earlier. And as long as the world does not do a tremendous amount of business with Australia, this problem would be confined within Australia instead of permeating to the rest of the world to let it become a global financial crisis.
  3. LOL
  5. Interest Only Part 2

  6. themickey


    Doesn't surprise in the least.
    Realestate in Australia has been marketed so hard it puts bitcoin to shame from a couple of years back.
    Every man and his dog has been pumping realestate like it was the saviour of the world, Gummint loves it, Banksters love it, Agents love it, Councils love it and mug punters thought it the road paved with gold.
    In Oz, on weekends half the thicknes of newspapers were devoted to RE, no exageration.
    Not a week goes by without letterboxes being stuffed full with RE pamphlets.
    It was a typical indication of a rort, the crazy part was how long it was sustained for - years upon years.
    Was truly sickening.

    Analysis by comparison website found that of the $706 billion worth of new home loans approved in 2014-15, a worrying 42 per cent of them were for interest-only repayment arrangements.

    And more than 900,000 of them will begin expiring from January, reverting to principal and interest payments.

    Graham Cooke, insights manager at, said it would add an average of $400 extra per month to repayments.

    “This, combined with falling house prices could mean that many people are left really struggling,” he said.
    murray t turtle likes this.
  8. Remember what happened here in the U.S. in the housing crisis. Short sales, people living in foreclosed properties for years without making any mortgage payments, debt arbitration for home owners who are at least making sporadic payments, outright debt forgiveness because banks were penalized for being too harsh, etc,. All the stops will be pulled out to keep the banking industry from collapsing. It will get very bad, but when the dust settles, and real interest rates have been negative for several years, look for a flood of immigrants to revitalize the economy, and look for companies that would mimic a Blackrock equivalent, because they'll make the proverbial boatload of money from rental payments.
  9. tomorton


    Australian guy I met last year said he had built his own house back in Oz but had come over here to work after the downturn in iron ore mining. Said he couldn't meet the repayments on the house, nobody was interested in renting it as there was no work, so he was just going to stay out of the country and let it fall down.

    It was obvious at that point something really serious was going wrong.
    murray t turtle likes this.
  10. Gotcha


    This is the kicker. Many people wonder why these crashes haven't happened sooner, but immigration is really that one factor that I think messes with all the fundamentals. The immigrants are inflating the GDP in my opinion. Sure it looks like there is 2% growth, but when you consider how many extra people were brought into a country, its no wonder that there will be a bit more transactions going on. Specifically with housing, all those extra people need to live somewhere. When you look up data for big cities, especially in Canada, you see record numbers of immigrants. They can't even build the towers fast enough. So the government is complicit in propping up this housing mess via immigration. Its therefore very difficult to expect that 30-50% decline.
    #10     Feb 9, 2019