Money Minute – May 4 2017 Major Mortgage Warning

Major Mortgage Warning

The following is a transcript from the video:

Morning to you all.  Listen we talked about warning signs of Australia’s housing market, notably Sydney and Melbourne and Brisbane.  One of the most important Canaries in the coal mine giving a hint of danger are the mortgage insurers.  Now remember a person pays mortgage insurance generally when they have less than a 20% deposit to buy their home.  That person pays to the insurance but it actually covers the bank or the lender if that borrower stops paying back their loan. So if there’s a whole lot of risky lending going on, the mortgage insurer is exposed.  Generally we don’t hear too much from mortgage insurers which is a shame because they have the best knowledge of the stresses in the housing market. And there are stresses right now!.

One who’s decided to speak out is Georgette Nicholas Chief Executive of Genworth.  She says there’s been a sharp spike in mortgage defaults in the first three months of this year. Now most of it is in mining affected areas parts of Queensland and Western Australia but it’s what’s happening in the big cities that’s especially disturbing.  One way bank regulators sought to cool down the housing market was to insist banks demand bigger deposits.  It’s called the Loan-to-Valuation ratio.  So if you buy a house for a million dollars have a two hundred thousands of dollar deposit borrow eight hundred thousand your LVR is 80. But Georgette Nicholas says, some people to get that deposit are using unsecured debt to get across the line.  So what’s that?  Something she says is kids borrowing money from parents.  Not so many problems they’re provided everybody remain solvent but she also says some are borrowing money on credit cards to raise the cash to prove they’ve got enough deposit for their home.  And the old generation talking about 17% mortgages in the 90s, imagine the potential of paying 21 percent, for a part of your mortgage now.

Well Georgette Nicholas says, this is dangerous and there are parallels with lending products that triggered the collapse of the US housing market back in 2007.  You have been warned!!!


Dow Jones up by 8. Ozzie a dollar seventy four and a quarter US cents

Karl and Liza –  it’s a warning!

Source: ACA Money Minute/Ross Greenwood

Overhauling the Insurance industry

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