Fears of housing 'fire sale' as interest-only loans roll into principal plus interest

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Originally Posted by Ean Austral

Sooner or later people have to take responsiblilty for their own actions.

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Totally agree and I think the masses belive to much of what the lenders say you can borrow. Last house we brought was about 6 years ago and some of the figures they said we could lend where down right scary - even more so once I started looking at the repayment amounts. We scaled back our purchase price to meet repayment amounts that we where comfortable with and converted our loans to interest only to make things a little easier and the plan was to have one property repaid by the time the interest only period was over. Of course life had other ideas that stuffed our plans but we still have enough fat in our figures to make the transition to interest & princial a painless move. If people just spent a little time working out how much they actually spend vs income rather than simply trying to get the max amount of $$$$ from a lender then Im sure they would be far better off.
I do recall however that the $$$ we where looking to lend did put us in the bottom half of property prices in our choosen area so I can totally understand how people get frustrated at the market and end up spending more to get what they want.

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Originally Posted by shanegtr

Totally agree and I think the masses belive to much of what the lenders say you can borrow. Last house we brought was about 6 years ago and some of the figures they said we could lend where down right scary - even more so once I started looking at the repayment amounts. We scaled back our purchase price to meet repayment amounts that we where comfortable with and converted our loans to interest only to make things a little easier and the plan was to have one property repaid by the time the interest only period was over. Of course life had other ideas that stuffed our plans but we still have enough fat in our figures to make the transition to interest & princial a painless move. If people just spent a little time working out how much they actually spend vs income rather than simply trying to get the max amount of $$$$ from a lender then Im sure they would be far better off.
I do recall however that the $$$ we where looking to lend did put us in the bottom half of property prices in our choosen area so I can totally understand how people get frustrated at the market and end up spending more to get what they want.

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Herein lies the problem, Want overruling need.

I grew up 6 kids in a 3 bedroom house , my parents did the best they could, but that was all we had. Don't think I had my own room till I was 14 when my elder brother and sisters had left home.

I want a new Range Rover , but I don't really need it as the D3 still has a few miles left in her yet.

Its just the simple way I see things ,a lot wont agree, but if you cant afford it with a comfortable margin built in , then you opt for something else or nothing at all.

Cheers Ean

PS we have friends whose daughter had to have a 5 bedroom home, newly married , no kids .Why - to be able to show it off to their friends. Needless to say mum and dad are now helping her out because they cant afford it plus the 2 cars. they will be part of the fire sale when it happens because its now worth less than they paid and they cant afford the interest only payments.. no sympathy from me either , they wanted to be better than the jones nothing else.

At the end of the day, the property market WILL correct itself. I’ve been saying it now for about 3 years and have been accused of being a pessimist many times.
I spent 23 years in the real estate industry and so have seen several ‘corrections’ over the years. The worst was in the early 80’s.
Property in Australia has become unsustainable and frankly, the banks DO have a lot to answer for, that said, the fact that 1st home buyers want to have everything that their parents have in a home (and they have traded their way to achieving what they have..... and SAVED) is simply feeding the greed.
When the banks find themselves in a negative equity situation, be warned. They will be totally ruthless in selling people up to recover their loans. I’ve seen it before and it ain’t pretty.
As has been mentioned several times in this thread, borrowers accessing their equity to buy toys and holidays will get what they deserve.
Once the slump is over, perhaps some of those people might have some memories about the pain of losing everything and this will keep the market cool for a while

I've got to say, although I have little sympathy for those borrowers who didn't exercise due diligence, I feel the banks have also contributed to the problem.

I keep a spreadsheet of all my major purchases and expenses. I am also looking for a bush block to purchase.
About a year ago, I approached the bank for a loan. About $200,000 ought to do it.
They were concerned my expenses were a too high. I had to get my spending down. "What to?" I asked. "$10,000." was the reply. "Where do you get that figure from?" I asked with an air of disbelief. "That is the figure usually given on loan applications." was the answer given. Is it any wonder borrowers have over extended themselves.

Oh, the bank did offer me a $5,000 personal loan. Suffice it to say, I didn't accept their attractive offer.

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Originally Posted by wardy1

Athe property market WILL correct itself. I’ve been saying it now for about 3 years

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My father said that for many years. He's been dead for fifteen.
Judging from the sales in my area, my house must be worth $600,000. Two years ago it was valued at $400,000. If there was a 20% drop, I'd still be 20% up on two years ago.
Oh, my opinion, it will more likely be about a 6% drop.

Probably be different in different towns and cities. Some of them have been going up a lot faster than others.

"Larger price falls than expected and accelerating"- love it when an economist suggest "market set to stabilise later in the year"
House Price Decline ‘Larger than Expected’
I love economics but wonder were the evidence is for that comment.

I do have a lot of sympathy for first home buyers with less than five years ownership. Saw it in Sydney in the recession we had in 1989 It is toughest on the poorest most of the time.

My guess prediction is the party finished well over a year ago with money inflows to the housing market still piling in. As soon as the real proverbale hits the fan Banks cannot lend you or I or anyone money which is a odd fact which you can lay money on!

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Oddly most money gets invested by the least able to cope with the pain of a business cycle downturn by mums and dads, nurses and similar well after the investment types have quietly taken their profits. I know at several very well of people who are now renting after selling all their property.

I own my home and that's all thankfully

"Sooner or later people have to take responsibility for their own actions." Good grief man! What are you suggesting? Whenever anything goes wrong these days it seems someone else it at fault.
We've got the situation in Perth where premium plate taxi owners are blaming everything except their own greed for paying well over 350K to purchase a plate. Uber arrived and the state gov. couldn't do a thing about it and it eroded the booking business of the taxis where it made up a major part of their business. Many of these owner drivers took out mortgages against their home to fund the purchase of what they reckoned was a totally protected business. Now there's talk of giving them compensation but as an ex owner driver myself I object most strongly to that.
The major player in cabs here had put forward a proposal to charge anyone who dared book a cab via the phone and extra 9 bucks per ride! That's one reason Uber and the others are so popular apart from the fact they're more reliable and cheaper..... sometimes.
If those people used their house as security that's their hard luck. If they use them to buy toys they won't get compo so why should they get it for a failed business?
Not forgetting they've lost only part of their business not all of it. But there's lots of people who "invested" in cabs to hire out to lease drivers at top rates have the ear of the pollies and that's making them try to appease them.
Personally I think the one thing you should be protecting most is the family home and if it goes tits up, you're to blame not others for your stupidity. Nothing is sacred these days and certainly not as far as pollies are concerned. Except their own well being and futures of course.
No sympathy from me.
AlanH

PS. And I never got 350K for my plate when I sold years ago.

I have always paid "Cash" for everything i have bought, Sure many of the cars, vans, household goods and boats I have owned have been pretty "Ordinary" but I have always owned them "Outright" and haven't been beholding to any bank or HP Mob and I haven't had to pay interest (Vigorish) on what I have bought.
Over the years we have been able to squirrel away a nice nest egg by doing this even though we have always rented and never bought a house and have lived within our means.
These days people tend Not to save and want instant gratification via a bank or HP loan and don't care or know that a huge percentage of their repayments are fees and interest and that it takes a lot of time to finally pay off the principal.
The ONLY definite winners in the housing market are the real estate agents and the banks, Everyone else is either gambolling or dreaming.
I DO feel for the young families that loose their home because at the end of the day they simply cannot afford what they have bought But you can't only blame the banks and the real estate people for over extending yourself
Maybe this "Correction" will weed out the property investors and make housing a much more affordable option for families and the banks will rethink their strategy about dicking about with the figures on a loan application to make it more "Realistic" so that the borrowers will know Exactly what they can afford so that they don't end up going toes up at the end of the day.