Mortgage Prisoners Totally Screwed in Australia as Refinance Rejections Soar

Australia is flooded with "too good to be true" refinance offers. Rejections up 349% since April, 1426% from December.

Looking to refinance your Australian property you wish you didn't buy?

Not to worry, I can help is the message banks are sending. Oops, strike that.

The total number of monthly rejections went from 2,031 in December 2017 to 30,986 in July 2018, a mere 1426% increase.

The rejection rate itself looks much better percentage-wise. It's now 40%, up from 5% a year ago.

Debt Distress

Those who cannot refinance are in deep trouble. The Spike Exposes the Number of Australians in Debt Distress.

It's being described as a "mortgage mirage". It's an offer from the bank that looks too good to be true and, as it turns out, for many it is. "About 40 per cent of people who tried to refinance were unable to do so," Digital Finance Analytics principal Martin North said."If you go back a year it was 5 per cent."

The reason this is occurring is that, while those applicants cleared the bar for their original loans, that bar has now become a lot higher, following years of banking reform and the fallout from the banking royal commission. So, now, they simply don't qualify for the same amount of debt they once did.

"When people took out the loans there was a lot of widespread fudging of the numbers," chief investment officer with funds management firm, Forager Funds, Steve Johnson said.

"People were getting loans on the basis of a four person family having $30,000 a year of living costs living in Sydney. "And it's quite clearly impossible to live in Sydney on that much money a year. "The biggest issue is that people have borrowed too much money relative to their income and that is a very difficult problem to unwind."

Mr North has calculated there are now close to 1 million Australians on the edge of mortgage stress — defined by Digital Finance Analytics as borrowers who are going further into debt or eating into savings because their expenses are greater than their income.

Mortgage Prisoners

One million mortgage prisoners are on the edge.

They either need to come up with more money or sell. But sell to whom? And at what loss?

Flashback: July 23, 2017

I asked "What can possibly go wrong?

I don't know if it did go wrong yet, but if that genius bought more homes as was his intention, it will.

Vague Recollections

I seem to recall events like this happening somewhere else, where banks lent money to anyone who could breathe, whether or not they could afford what they were buying.

When was that? Where was that? Was there a crisis? Did anyone learn from it?

Darn, I just can't recall.

Mike "Mish" Shedlock

Comments
No. 1-13
everything1
everything1

They are forecasting 5-15% property price declines all around. The hottest markets Sydney and Melbourne topping the 15%, everyone else lower, but prices are up 85% since 2013! Whoa nelly, what's the goal here? Of course a few will be trapped at the top, as usual the hair trigger for RE seems to be the interest rates or tougher lender standards, you mean tougher lender standards effected property prices! Wow, who would of thought, er, I mean .. you mean banks control all this, well ok. Still, they are experiencing much the same thing we are here with higher priced units getting dinged.

CautiousObserver
CautiousObserver

Since Australia typically uses full recourse home loans, individual bankruptcies should be a good indicator as to when their banks are in trouble. Filings have reversed trend upward the last couple of years, but are not yet taking off in an obvious way:

George_Phillies
George_Phillies

The artist in drawing the shark and cage has accidentally drawn the human as being inside the cage looking out rather than outside the cage looking in.

DFWRealEstate
DFWRealEstate

They say the definition of insanity is doing the same thing over and over again and expecting a different result.

John212
John212

Not sure if any of you know what your talking about. Do you even know what Gov workers and teachers get paid. It rises yearly and are around 110 to 120k a year now for a FT so x 2 is 240k a year pre tax. In 5 yrs time this will be much higher. So the reality is with population plus public sector wages will easily swallow this inventory in a few years. Only with mass unemployment will things change so it's rather just a slowdown for a few years while wages catch up.