An Overdue Return To Saving Up
Sydney Morning Herald
Thursday November 20, 2008
ONLY a generation ago, getting a home loan meant a nervous trip to the local bank manager by dad in his best suit, clutching evidence of a 10 or 20 per cent deposit painfully scraped together in the low-interest savings account, long employment with a stable company, and maybe a reference from a worthy in the church, Rotary or Masonic Lodge.
In the unusually long property bull run in "Anglo-Saxon" economies like Australia, now ended, this tradition went by the board. With property prices rising faster than incomes, building a deposit was a vain pursuit for most people. Along came new mortgage dealers, tapping into low-interest fund sources like Japan and cutting out branch overheads, to offer 100 per cent finance - sometimes a bit more, to cover extras like stamp duty and mortgage insurance. It wasn't necessary to meet anyone face-to-face, neither the lenders nor mortgage brokers.Needless to say, a lot of weak borrowers have been shaken out of the property tree by the slump in property values. In Australia it wasn't as bad as the subprime lending market in the US, where loans were given to people with proven credit delinquency and little chance of meeting repayments over the long term, but it was bad enough to get some into serious financial difficulty and others to get themselves trapped into negative equity in their homes.Now we learn that the big banks are starting to restore a bit more rigour to home loans. The Commonwealth Bank will lend only up to 80 per cent of the purchase price without mortgage insurance, and up to 95 per cent with it. The ANZ will require a 10 per cent deposit, plus mortgage insurance. This will firm up the asset base of the Big Four banks. The question now is whether rapidly falling official interest rates will revive risky lending by the second-tier banks and lenders.Many of these are still offering 100 per cent finance for homes, though more are expecting their customers to have enough savings to cover stamp duty and mortgage insurance or at least "savings" provided by parents or other helpers. Some lenders are helpfully advising potential clients that the expanded first home buyers grants can be devoted to these extras. Thanks to federal and state help, the no-deposit home loan may continue. Dad, if he is part of the household, doesn't have to worry about his suit just yet.
© 2008 Sydney Morning Herald