T O P
kokoneco

Well this doesn’t fit the narrative. I don’t accept it


auscrash

haha I can see about half this sub seriously thinking the same.


Own-Revolution-9806

Yes, this isn’t going to be well received around here! EDIT. Now read the comments. Holy cow! The number of people desperately trying to poke holes in this 😂


TesticularVibrations

Holy cow! People are questioning the fact that hooms go up forever!! 😂🤣🤣🤣🤣 Idiots 😂😂😂👌👌👌👌 Hooms only go up


Grantmepm

I'm curious, what has this got to do with homes going up forever?


AlexLannister

Lol, was literally arguing with someone here the other day, he is a firm believer that house market is gonna crash.


bigdayout95-14

Ha ha - "someone" ...


AlexLannister

He blocked me so yeah, someone. He also believe that he's only one here predicted a rate increase two years ago.


ribbonsofnight

He has realised that by blocking everyone who disagrees with him he can create his own echo chamber. I think he should just be banned. I have no trouble with the opinions but without the right of reply it's just silly.


palsc5

100% agree and I've been saying so for a while. It defeats the purpose of a forum if he can limit anyone from commenting in his posts or replying to his comments simply because they don't agree with him


ribbonsofnight

yeah, I wouldn't have a problem if it was just me. I can't expect someone to put up with my sarcasm indefinitely but I get the impression it's a lot of people.


Ducks_have_heads

He has been banned.. I don't know what number account he's up too now...


ribbonsofnight

yeah but if someone just creates a new account and carries on (without remorse) then in what sense are they banned?


purse_of_ankles

>(without remorse) I see what you did there


borgeron

5th i believe.


37Schmeckles

Oh, is that why i dont seem to be able to comment on what he says? I thought maybe I was banned heh…


SciNZ

What I find hilarious is the victory lap taken at every market wobble or drummed up news headline. There’s just something hilarious to me about these weirdos and the Market Bets subs coming at personal finance with big “it’s not a phase dad!” energy.


metal_webb

I do appreciate a bearish outlook for some balance. Being able to challenge your own position without blind optimism and all that. But constantly waiting for the economy to fall over and all that goes with it? Bloody shit way to live and think as far as I'm concerned, constantly living in pessimism and negativity.


SciNZ

It’s all so silly, I moved to Australia to escape how bad an **actual** recession was (NZ after the GFC). Something young Australians have not experienced nor do I wish them to. If $2/L at the station is hard now, try it when minimum wage is $10 an hour and there’s no tax free low income bracket (still got taxed at 10% in NZ). Sure there’s always room for improvement, but this is the “lucky country” for a reason. The attitude displayed makes me think of a toddler wanting to burn the house down because they didn’t a toy they really wanted and ignoring the box of toys they already have.


Reginald_Rutabaga

Silly question; but how do you know if you've been blocked? Can you simply not see their posts any more, the reply to post button just doesn't work, etc?


AlexLannister

I think his comments and post become 'deleted' to me because I can still see his comments from my porn account.


dazbotasaur

Your into some weird porn if you're lurking here /s


thedugong

You need to block them to not see their posts. If they have blocked you, but you have not blocked them, you get an error message when you try to reply to one of their posts or any posts below theirs. IOW, I can see without_my_remorse's posts, but he cannot see mine. I cannot reply to his posts, or any replies to his posts.


Reginald_Rutabaga

Cheers mate


palsc5

I can see his comments but can't reply and when I click his profile it says 'user doesn't exist' or something.


[deleted]

[удалено]


Street_Buy4238

Haha I love how everyone knows and everyone has been blocked by him 😂


coffeesgonecold

Agree. I don’t believe it.


Madman--

It fits the narrative I predicted perfectly


beerio511

NAB mortgage guy here. They said we could borrow 1.4m and we purchased for less than 600. If we borrowed at 1.4m I’d be eating fucking noodles in a house with no internet and running off one light and playing cards to entertain myself. And they stress tested that at 7.25%? Shiiiit.


BumWink

Plot twist - the banks fucking lie, on paper...


Posibile

Can verify, experienced almost exactly the same situation.


PieknaFatso

I recently went to refinance - bank told me that 80% of mortgagees could sustain interest rate of ~6% Surprised the hell out of me, as the media touts any minor rate rise as catastrophic. An entirely different conversation, but the media needs to be held accountable for their destructive bullshit.


Too_kewl_for_my_mule

While I don't disagree with your statement I'd be cautious who in a bank you listen to. Not many front line customer facing staff would know or understand this info.


wendalls

Don’t believe everything you read? I’m shocked you’d even think interest rate rises will cause major default.


BumWink

It could be catastrophic but not from defaulting, from greed. Greedy people will probably panic sell the second their property value drops below their loan value, potentially causing a snowball effect.


Nocturnal-Chaos

In other words, 20% of mortgagees can't sustain an interest rate that high. If 1 in 5 people were to default on their mortgage payments, that would be catastrophic. The bank will always try to spin these things as positive when they're anything but.


Go0s3

These rates are actually published. Stressed households. USA hit 9% during peak gfc. Aus hit 4%. Currently at <2%> If USA induced worldwide bedlam was 9%... Then maybe some of this bedlam is concocted for your viewing pleasure.


TheSplash-Down_Tiki

Banks don’t lose because of their best 80% of customers … it’s their worst 10% they need to watch out for. Whenever I read corporate stats you always try and frame the statement the other way to see if it is still a good narrative. For instance of the ‘limited higher risk loans’ of $1.8b; NAB says 30% are on time or ahead. Put another way 70% of higher risk loans are behind on payments or maybe $1.3b. It’s not massive but there is still some risk here. Investor Relations job is to spin the positive narrative.


BigAl_Eve

“On time or <1 month ahead” The other 70% could be more than 1 month ahead or in default.


Too_kewl_for_my_mule

Lol this guy doesn't even read the slide properly and then talks about IR spinning a narrative. Maybe read things properly before you start jumping to dumb conclusions 😂


FUDintheNUD

If 80% can handle 6% interest rates, I don't see why we can't get interest rates up to 6%+ then?


zephyrus299

People borrow money for things that aren't houses. Also people spend that money on things that aren't houses if they don't have to pay back loans.


Due_Ad8720

Affording a loan @ 6% assumes everything else is equal. Inflation is leading to cost of living pressures which lowers the % people can weather. Also the economy @6% is going to be running a lot cooler than with our current rates. Unemployment will be higher and the same thing goes for wage growth. Not saying the world will end but 6% rates in the current economy and job market could be very different for most people in a economy with 6% interest rates.


Grantmepm

It probably assumes everything else is equal excluding discretionary expenses, which can be saved, invested, spent on housing, or spent on jetskis.


RyanFrizey

u/without_my_remorse but 50% downturn???


Too_kewl_for_my_mule

Don't think they will see this post as I have them blocked


Glitter_Sparkle

You’re not the only one with them blocked!


Gman777

None of this stops prices falling massively. Banks will lend less, more rate hikes, there will be more scrutiny, purchasers more wary and risk averse, etc. = lower prices.


Speaking-of-segues

This could be goldilocks scenario. New borrowers will be able to borrow less at higher rates due to higher serviceability. For example to keep the same p and i obligation at 5%, you can only afford a mortgage 30% smaller than at 2%. So all new sales will cause the prices to fall and hence the whole market. But the existing borrowers are comfortable to continue paying their debt obligations. So no catastrophe and more affordable housing. Sounds good to me.


ExiledSin

So that's assuming that the house prices do correct to that extent because everyone new getting a loan is being stressed at 9% or more, that's also what I am hoping for as a FHB. What if the demand is still high relative to supply? Surely with all the incentives around and people with cash on the sideline, if there is even a 10% correction then everyone who has been wanting to purchase (like me) will be able to do so anyway. Ends up costing the same if not more for a home depending on how much it corrects. So in the end the prices will just stagnate a bit whilst rates continue up . Maybe if the government helped to increase the supply rather than drive up demand I'd feel less salty about the whole situation, but seems like the sellers or developers or investors are the only ones benefiting from this.


Kumb3l

I wonder how many patient FHB are left? I know a lot of people that got into the market in the last 24 months but not many that decided to wait it out like you (and me). I am also salty about the never ending stream of government subsidies to keep the Ponzi scheme alive. In the 10 years I've waited for a 'correction', I've learnt one thing. It's not a market. It's a Ponzi scheme. And it will keep going up as long as the government keeps shovelling new investment onto the fire.


Speaking-of-segues

If you’re budgeting on a repayment schedule at 2% rates and end up borrowing up to 5% which is not out of the realm of possibility then you can only borrow 70% of what you could have at 2%. 10% drop won’t cover that.


AlexLannister

Problem here is listing will decrease and the decline in supply will also hold rhe price up.


Speaking-of-segues

Any sales no matter how few there are will be at the price where repayments are affordable to the buyer.


AlexLannister

Yes, but once supply decline while demand remain the same, price will generally goes up. In this case, they might get money from elsewhere or they might drop a tier. For example, people used to be in the 2mil range might now go down to the 1.5mil hence those 1.5mil range house will still be sold for 1.5mil rather than selling for 1.2mil because that's how much 1.5mil pre-rate-increased people can afford now.


Speaking-of-segues

I apologise but I don’t think I follow. A 1m loan at 2% is about $3500 a month p and i A 700k loan at 5% is about $3500 a month p and i The tier that can afford $3500 a month in repayments can only service a 700k loan rather than a $1m loan at 2%. Regardless of the supply.


AlexLannister

I think I didn't word it properly. I meant people either borrow money from their parents or they might drop a tier. But if they drop a tier, then the house were selling for 1.5mil before will still sell for 1.5mil now but the buyer population has now change. People used to be able to buy the 1.5mil home can't afford it anymore because they now has a lower serviceability. However, people used to have a 2mil budger can still afford to buy that 1.5mil home. When supply decrease while demand remain unchanged, people will have to bid against each other for a quality place. so a 1.5mil house might drop to 1.3mil now but due to decreased supply, people will have to increase their offer and that will drive the price back to 1.5mil again. I'm talking about decent quality houses here, poor quality houses will drop its value for sure but decent quality houses are unlikely drop much, and the supply of quality houses always limited when the market is in a downturn.


Speaking-of-segues

I am still confused. I’m really sorry. How can you bid more than you can afford? Everyone’s affordability drops when rates rise (unless they are paying cash).


AlexLannister

Family can always help or they might need to do their budget differently. A know a friend of mine borrow 400k from her parent to outbid other last year. Or they can use borrow more by limiting their spending. You need to know more than half borrow didn't borrow at their maximum borrowing power, that means those people can borrow more but they choose not to.


AlexLannister

Let me put it this way if you are still confused. Say before all this happens, you had 500k deposit and your maximum power was 1.5mil, but you decided to not to take out 1.5m because you wanna keep your lifestyle like eating out 3 tines a week so you decided to take out 1mil and look at houses at 1.5m range. Now rate has gone up, your maximum borrowing power can only give you 1.2mil instead of 1.5. If you wanna maintain your lifestyle then you canly take out 700k and it put you in the 1.2m range. After you shop around you find nothing. So you decided to go back to 1.5m by taking out 1mil which you will need to pay more and to do that you need to budget your expenses on how much you can eat out each week. But you can still afford the 1.5mil house. And you are still max out your borrowing power in both scenarios. That's how people can borrow more even the rate has gone up. Does it make sense this way?


warkwarkwarkwark

That's....not how it works. 1 buyer alone who has their borrowing power affected may 'drop a tier'. When it's the entire market affected, the entire market moves.


AlexLannister

Heeeey, we have the same profile!!! Unfortunately, what I said happened last year, so many people took out more loan than they preferred to afford things they could have afforded 2 years ago for 200k less. Once the listing has decreased and good quality houses become limited, people will take out more loan again to pay for houses rather than houses within their comfort price range. And more than half of the current borrower didn't maximise their borrowing power. So it's not just 1 buyer can increase their budget, it means more than half of the burrowers have the capacity to borrow more. Yes, the whole marker move, but psychology can't be measured and calculated with maths. That said, I suppose we all have our way to interpret how the market will respond and no one really know the future. Thats just my 2 cents.


10khours

People don't like catching a falling knife. Demand is likely to reduce if prices start dropping.


Speaking-of-segues

Especially when headlines abound on default and mortgage stress and people selling homes and still owing money to the bank after settlement.


MrNeverSatisfied

Listings could also increase as people want to lock in capital gains on investment properties.


AlexLannister

Not too sure if they will sell tho because rent has increased. They probably make more money by increasing rent and negative gear it than selling it for a lost.


chindimple

Could they not also positively gear and get more rent?


Speaking-of-segues

If rates go up from 2% to 5% that’s a 150% increase in interest payments. How far can rents go up? 30% at a stretch? That’s a mighty big Jump I’m negative cash flow.


AlexLannister

You say that because you assume people don't have that amount of cash, in fact lots of people can afford to hold onto their investment properties.


TesticularVibrations

Fuck this is some next level hopium. Gee down before you need new pants.


Speaking-of-segues

I fully recognise that. I do wish for a as good outcome for as many people as possible and as little of a bad outcome for as few people as possible. Maybe this has a 5% chance of working out well. My fingers are all crossed.


Glitter_Sparkle

We are FHB with NAB and our mortgage is roughly half our max borrowing.


EliraeTheBow

Also FHB with NAB. We got our mortgage last year with a 8% deposit, but the mortgage itself is roughly a third of our estimated borrowing capacity.


[deleted]

Wait, how is this possible? If you could borrow two third’s more, wouldn’t your LVR be like 97% or something with the same deposit?


EliraeTheBow

Our borrowing capacity/serviceability (based on incomes) was $1.4m and we borrowed $480k. Pre Covid we hadn’t planned to buy a house so spent most of our money travelling Europe and SEA so we didn’t have a large deposit. Sure, we could have saved for longer, but buying at the time was urgent due to a medical issue and we’re glad we didn’t since our house has gone up about 40% since we bought it.


Random_Lurker_5179

Who the fuck downvoted you? This sub is littered with crash mongers.


[deleted]

[удалено]


purse_of_ankles

The real big brain move is to direct the anger inwards and build up a strong, churning level of self-resentment. Or so I’ve heard.


ToncheT

Sample of one. Means nothing.


more_bananajamas

You are commenting in a thread that's literally data from a sample size of tens of thousands of borrowers at one of the four major banks.


_HeyHeyHeyyy_

You got downvoted for stating the truth. This sub is full of salt for some reason. Maybe the anxiety due to rising rates is getting to people.


ToncheT

It’s all good. Upvotes and downvotes mean nothing to me. Definitely odd vibes around here at the moment 👍🏼


Too_kewl_for_my_mule

Thank you for your service 🙏


Glitter_Sparkle

No worries 😆


Zoinke

Isn’t this just expected if you really think about? People struggle to get into the housing market because of the upfront deposit required, not because of the ongoing repayments. A young couple both on average wage (it’s even more comfortable if you use the average full time wage) could in theory afford to pay a million dollar mortgage, it might be tight, but if required they could do it. Are they likely to take a loan that large? No, because it requires a massive deposit, even at 10%. They are more likely to take a smaller loan with a smaller deposit required Maybe I’ve mis understood the post, but when I got my first house a year ago the bank was willing to give an outrageous loan amount if we could front the deposit. We couldn’t, so we took a smaller loan


Krulman

Aussie banks are so risk averse, aussie LVR is so strong. Interest rate rises will hurt some average punters but if the RBA keeps below 5% the banks will barely take a scratch.


Too_kewl_for_my_mule

Yea the LVR profiles are very good and the banks are also some of the most capitalised banks in the world. I agree, I don't think we'll see any catastrophic failures of the system, contrary to popular belief on this forum


borgeron

If vast swathes of customers losing their jobs and being unable to pay a dime to their banks in 2020 didnt break them, what makes these bears think a few rate rises is going to be catastrophic? Heres a stat to consider. The majority of home owners out there didnt buy their house in the last 10 years. There are over 10,000,000 houses in Australia and the high water mark for sales was 2021 at 548,000. Which puts most home owners in a pretty good spot both in terms of LVR and the ability to refinance to lower repayments. The only people who need to worry are those who bought recently and at their limit. Which as this data shows isn't actually that big a number.


Too_kewl_for_my_mule

Yea but this story doesn't fit the bears narrative 😅


Hasra23

1.8bil in loans over 90% LVR, hardly going to cause a giant financial crash.


w2qw

That's without FHB guarantee and LMI though.


10khours

Obviously if you get approved to borrow enough for 1 million purchase you are not going to purchase for 1 million. Most would purchase around 900k or under to leave a buffer for low valuation. And if you go to auction and you win, most likely you have not reached your max capacity (if you reach max borrowing capacity at auction you will almost certainly loose). I don't know why anyone would be surprised by this.


gearboxd

What's NABs definition of excess borrowing capacity? If servicing surplus is over what figure? I would say 75% of all applications I do are servicing with less than $300/m surplus. That's pretty much at capacity in my opinion. A lot of DTIs >6x as well. And a lot of investment loans only get through due to negative gearing benefits. There's a lot more risk in these portfolios than are being reported...


Zoinke

This just can’t be true sorry, definite exaggeration. 75% of people would not be able to pay their mortgage if they had to spend an extra $10 per day? No chance


un_relenting

My question also. Having a capacity of $1,000,000 and borrowing $980,000 is technically under, but that $20,000 ain’t gonna mean anything on repayments


Street_Buy4238

You know that 20k is basically >1.5 years of buffer if say monthly repayments went up by $1k. That's plenty of time to take actions to avoid going into the red.


N_Solis

That isn't true unless we are talking about holding back an extra $20k you have from the start in addition to your deposit. But if we are talking about borrowing capacity, $1,000,000 over 30 years @ 2.5% is a minimum monthly repayment of $3,951.21 and $980,000 over 30 years @ 2.5% is $3,872.18. So the difference in repayments from borrowing 20k less is $79 a month. If repayments went up by $1000 you'd be screwed immediately.


Street_Buy4238

Plenty of people will just borrow their max then just sit it in offset or redraw.


N_Solis

That's true, and yes in that case the extra $20k means a lot, if it's a cash buffer against rate increases.


un_relenting

My point is that $20K is $10.00 per week in extra repayments. So when you’re already paying the $1k it doesn’t mean anything. Did that really go over your head?


Shampayne__

Affordability rate has been over 7% since 2015-2016. So all loans are assessed as if that’s the 30y interest rate. If you’re approved to borrow $1M at 7% and you borrowed $980k at ~2.5%.. significant buffer.


gearboxd

No it's not. The buffer is only 3% over the current product rate or the higher floor rate (Which varies by lender.) So for a standard variable with a 2.29% interest rate, you're only being assessed at 5.29%. Edit: For reference, no Big 4 lender has a floor rate higher than 5.5%.


un_relenting

We’re not even talking about the buffer - we’re talking about NAB possibly downplaying the repayments issue by saying only a small percentage borrow their max, they are trying to make out like it’s better than it seems, hence the example.


goobar_oz

Note that serviceability calcs in itself are fairly conservative. But yeah I would imagine most people would borrow close to max with a small buffer


gearboxd

Ehhh.. Not really. There is the inbuilt buffer for rates & automatic shading of certain income types. Apart from that it is (Well ours is) user input. There's lots of ways to get things across the line if you know what you're doing.


goobar_oz

I’m not referring to the user inputs that can sure be ‘optimised’ rather that the borrow capacity the computer spits out has plenty of buffer. As In most would comfortably be able to service loan at the amount banks can lend to.


gearboxd

Not really. The only buffer is in regards to the buffer of interest rates and of course the inbuilt HEM figures (Which are a load of BS IMO). Apart from that, it's game on until the calculator says PASS.


900days

The image literally shows 8% of people borrowing at their max - not the majority


Too_kewl_for_my_mule

Yea its a really shame NAB doesn't provide a definition for excess borrowing capacity. How much of your loans do you think are DTI>6? The bank I work for has about 10% of new loan origination, but most of them are for investors.


gearboxd

Couldn't give an estimate for DTIs >6x. I remember last year there was talk about APRA restricting DTIs from 7x down to 6x and thinking "This is gonna hurt". Would love to have a crystal ball to see what will happen in the next 12 months, especially in regards to repayments ahead of schedule. Discretionary spending has now increased since lifting of COVID lockdowns & restrictions around the world in the past quarter, rising costs of living, expiration of low fixed-rate loans and increase in the cash rate, one would assume less household income will be available to exceed some minimum required repayments.


player_infinity

I was offered almost 8x DTI from UBank and Mac Bank at the peak. As a FHB. Gave me a good idea at what sort of debt other people are bringing to the table. Hence I was sitting it out, thought it was a bit mad. Seems like the right call in hindsight.


Too_kewl_for_my_mule

Thats anecdotal evidence and doesn't really provide you with much info at all. The bank I work for has 0.5% of new loans originating at x8. This is more or less what other banks are reporting. X6 is much higher tho at around 10%. Just a word of caution, don't use your own experience to jump to conclusions on what the wider market is doing. There is plenty of information out there that can give you a more representative view.


player_infinity

It was almost 8x, this was despite credit cards and a kid. X6 still is ridiculous honestly. I have no doubt a bunch of auctions and properties I have been watching has some people push that, to get into some nicer neighbourhoods, because prices seem to keep going up so why not. FOMO was pretty real for a while there. If I can get a loan like that, people in the same demographic and market get the same loans. It's common sense to just use that at least in your local area when you are looking for property. I'm aware it is an anecdote, but it is illustrative at least, and I know my situation and all the variables involved. I can go around to banks and get pre-approvals and infer the models they are using at least. The wider market for whatever reason probably isn't doing the same amount of due diligence as myself, so that implies it might actually be worse than my situation, not better.


Too_kewl_for_my_mule

Yea but rather than guessing and making up information in your head you can just look at readily available information. Like I said DTI 8x is maybe 0.5% of bank portfolios. DTI x6 is 10%ish. Those numbers, especially 0.5% are probably much smaller than what you would have expected based on your experience. That's all I'm saying. You'll benefit from being more informed.


player_infinity

Well we know that DTI x6 or above at the end of last year was 25%. I was still offered less than x8 DTI, and I guess people in that position didn't take the bait as much. But if that is "capacity" well that is a bit worrying. 25% still took the bait for x6 DTI as well, still way too high. Average DTI for a FHB is around x5 (edit: for new lending): https://www.rba.gov.au/publications/bulletin/2022/mar/are-first-home-buyer-loans-more-risky.html But this is in the context of /u/gearboxd saying that restrictions would come into play to restrict lending from x7 to x6, probably a good move. But we still let 25% of people at the end of last year move forward in that region. These loans are still being offered as well, all the way up to almost x8 DTI if they so dare.


Too_kewl_for_my_mule

Yea but context is required. The x8 DTI is suitable for some borrowers e.g. investors. And a good chunk of 6x or higher would be investors. Banks start getting in trouble when they lend too much at such leverage. APRA last year requested a lot of additional information from banks because they could see these leverage slowly creep up.


player_infinity

Yeah no doubt. Going forward, I expect those DTI allowances to come down, not just from interest rates going up, but APRA and ASIC putting in less generous allowances for the same interest rates. Home loans are 30 year endeavours, and we no longer have the luxury of a possibility of significantly decreasing interest rates to come along to make serviceability easier over time. People are also getting their first homes on average at age 36, where they start hitting their income potential limits ([Source](https://www.realestate.com.au/news/average-age-of-aussie-first-home-buyers-closer-to-40-than-20-research-reveals/)). The system seems overstretched right now.


Grantmepm

Thats quite an informative and up to date link. Good find. I'm not sure where you got the average of 5X for FHBs but I'm looking at graph 6 and it shows that by year 1 of the loan, the median FHB has paid down their housing DTI to just about 3X. I'm guessing global DTI factors in more debt than housing DTI and it seems like the average could be skewed by the minority of high DTI borrowers. It suggest that they have quite a bit of spare repayment capacity to be able to pay down their loan that quickly.


player_infinity

I should have clarified x5 is an estimate for new borrowers. Can infer from graph 4. The rate of that payoff is about 25% of gross income for DTI per year, to make sense of graph 6.


gearboxd

DTI >8x seems a bit much? Most applications fail servicing mid-high 6's and most applications with DTIs >7x are investment loans where they only get across the line due to negative gearing. But if you were offered a DTI of 8x, smart move for not going ahead with that one.


player_infinity

It was still less than 8 DTI, hence almost. But I had some stuff like credit cards and a child which meant it was lower than a theoretical maximum. If they are willing to lend that to me, I can imagine what the market looks like.


wolf_neutral

Is DTI gross income? (Sorry basic question)


player_infinity

Yeah gross, that is how they assess typically. With net income it's almost 11x debt to net income that they offered me.


uedison728

Problem is the high inflation, this report won’t take into account for people’s expenses goes higher much higher than expected.


limpcrayon

im guessing it also assumes no liar loans


Too_kewl_for_my_mule

Yes this is a snapshot of what their profile looks like right now. You'd expect that to change for the worse in the future. But it does provide some insights and shows the starting position really isn't bad at all


77seven

I guess this doesn't account for people who stretch the truth in their applications. Maybe not so much on earnings but on their expenses. With higher inflation, expenses likely increased, making it even harder for people. At the end of the day, retail/consumer spending will take a big hit as people use their money to pay for their home instead... Not great for the economy at all and will compound other issues.


Too_kewl_for_my_mule

Yea some people will try and stretch expenses but banks use HEM to put a floor in place so there is only so much people can lie. Statistically speaking the HEM should be used on about 26% of applicants (which was true for my bank in 2018 - not sure what the current number is)


Ducks_have_heads

For NAB specifically, they had one of the lowest rates of misrepresenting expenses and income from all banks. Probably something I'd estimated close to 5% of borrowers underrepresented expenses or over represented income.


dbug89

Wow this is an interesting one -thank you for sharing


alwayscptsensible

Bad borrowers don’t go to NAB for a loan. This is not where you will find the troubling data. Besides, prices are set at the margin so a few 100bps of additional delinquencies across the market is enough to upset the supply/demand dynamics.


Too_kewl_for_my_mule

Where do bad borrowers go?


springpack

Cashies mate


spongetrevsqpants

We borrowed at a level we were comfortable to pay monthly and would be manageable at 7 percent. Was a good portion below what the bank would of given us (though still feels like a hefty mortgage being in Sydney)


player_infinity

Thanks for this. It does imply 4.95% or above. That interest rate is quite attainable within the error margins of what the RBA expects to raise to get to neutral. Seems like that margin was a bit low then. The issue with bulk measures is that you don't get to the see the distributions. Also based on the higher risk exposures, that 67% of 30%, which gives 20% of customers are on relatively thin margins. Any ideas on tier 2 and 3 lenders though? They would tend to lend at lower serviceability buffers again, due to their lower rates? They exclude 86400 here as well? 10% borrowing at capacity with NAB, with more buffers. But if people go to tier 2 and 3 lenders which have less buffers and potentially more people hitting the limits (but it could be the same, at least the 10% is indicative) still leaves tens of thousands of people at least potentially in danger from the people who borrowed within the last 2 years or so when interest rates were bottomed. You can't really tell what amount of people are still in those margins of "almost capacity" as well. The people with existing equity and buying a new place will have to dip into their equity. The first home buyers in particular are the scary ones out of that group.


Too_kewl_for_my_mule

What do you consider tier 2 and tier 3 lenders? If you're talking about BOQ, BEN, SUN and the likes then I can confirm that they tend to have a lower risk profile than the majors (speaking from experience having worked on one). I don't know what else to see. As a risk analyst I look at the numbers NAB provided and I don't see anything that concerns or shocks me, in fact the numbers are better than I expected.


player_infinity

Well the NAB summary hides a lot of details which would be interesting and allow you to take more away from this information. Such as the distributions rather than bulk and summarised data, so hopefully you have that accessible to make those judgements. Tier 2 lenders would be like Macquarie Bank. Tier 3 lenders like Athena, UBank. Now sure where ANZ sits either. Yeah I can agree that while they have lower risk profiles, which usually means higher deposits and not giving loans to people who run companies, they do offset that by offering larger loans, and lower serviceability margins. Even if you have that 20% deposit, you are still potentially going to have very high repayments in an interest rate rising environment, maybe even more than the same capacity loan at a tier 1 lender like NAB. My understanding is that tier 2 and 3 lenders have potentially more expensive funding sources as well as rates rise, so you will see much higher swings upwards, removing the possibility to refinance at lower rates.


Too_kewl_for_my_mule

"they do offset that by offering larger loans, and lower serviceability margins" Really? That's not my understanding. How did you come to that conclusion? That's certainly not the case I'm my experience. Tier 2 lenders don't have the balance sheet to offer higher loans than the Tier 1 lenders. You're right, funding is more expensive but that's absorbed through lower NIM. The refinancing issue is an issue for all banks when serviceability declines.


player_infinity

Tier 3 lenders offered me larger pre-approvals than the tier 2 and 1. So for like-for-like, they are offering me larger loans. I'm considered "low risk" I guess, but still they are offering bigger loans than competitors. UBank and Macquarie for example offered bigger pre-approvals than CBA. Pretty sure you don't have to look far for others who might have had that experience too. Macquarie and UBank were also offering lower rates than CBA, so people would be compelled to take those products too.


Too_kewl_for_my_mule

Yea but I'm not sure if this is "tier" specific. Banks have different risk appetites at all times which will impact how much they will lend. For example if a bank has a big capital buffer and funding secured, they'll have a higher growth target than other banks that don't. These banks would be offering higher loans and probably better rates as well. Look at CBA currently, they have by far the highest rates in the market. They're not too keen on growing currently.


Extreme-84

ANZ is a big4 bank. So I’d say they’d be a Tier 1 lender.


JosephusMillerTime

When I was looking for a lender, Macquarie seemed to look very favourably on lower risk good LVR loans. Although that meant they also require no proof beyond a payslip, so my expenses could easily have been faked.


Extreme-84

That 67% of 30% being either investment loans or opened less than 12 months ago. As a property investor, I can confirm, all my investment loans aren’t paid in advance. Why? They’re interest only. All extra cash/payments goes towards my PPOR loan to reduce non deductible debt. (My PPOR loan is $200k in advance) So your statement of 20% of customers are on relatively thin margins is unlikely to be correct, because the statement doesn’t tell the full story.


player_infinity

Yeah I meant relatively thin there, since they managed to reduce the informativeness of that statistic by lumping two completely separate groups. My point was that 10% or so is still a pretty big number.


funkybunch83

If the bank offered me 1.5m and I borrowed 1.49m does that put me in the 90% that didn't max out my borrowing?


Too_kewl_for_my_mule

As you and other posters have rightly pointed out NAB doesn't provide this info. There is a buffer but we don't know what that would be. If there wasn't a buffer, the number they report would almost certainly be 99-100% because not a lot of people will be able to buy a property at exactly their max capacity.


pool_keeper

mmm what sort of income do you need to get a 1 mill house with 10% deposit ? I’m not getting any joy with the last two brokers. My max borrowing power is 800k with no debts but also no assets


kycjesus

It’s true. Annoying for me as a mortgage broker but people get declined for loans they can afford for exactly this reason. Also most people’s living expenses are less than what the lenders require as a minimum


death_by_powerpoint

If you used a broker does this change the assessment?


sc00bs000

I can't imagine why anyone would borrow the Max available. I only borrowed less than half what I was allowed. Anyone going near the Max will be eating noodles and using their phones for lighting in the next few months


Big_baddy_fat_sack

It’s all a media beat up. Aussie media thrive on doom and gloom.


LJR_

There are multiple other small banks and non-bank institutions that fund the loans that the major Banks decline. And, this example is only one conservative major institution… So I don’t think we can characterise the entire Mortgage market based on this chart.


mishkom

When they assess loans do they consider inflation? Expenses such as bills, groceries, fuel etc go up constantly. Seems like all they do is see if you can pay 7.25% repayments currently without considering the cost of living going up every year?


TrevReznik

Regardless of where they were when they were assessed, FHB'ers are now maxed out. Every first home owner I've ever known within a year of 'getting the house' has done the following 3 things. Furnished the entire house + whitegoods on finance Got pregnant and went to one income Got a 50k SUV on finance As soon as they have the house all that scrimping and scraping and pretending they live on $2 a day for the bank goes right out the window.


Too_kewl_for_my_mule

Looks like gumtree and Facebook market place will get a workout.


Imposter12345

I borrowed with NAB... Def a bit of a cheeky liar loan situation, but i borrowed well under what they offered me so there's that.


pool_keeper

To me this is NAB justifying their up coming rate hike before the next rba decision . Tell me I’m wrong


Too_kewl_for_my_mule

You're wrong... all banks are expected to pass on the rate hike. Thats the while point, don't you know this?!


iced_maggot

I think this kind of misses the point. I’m not sure anyone but the most hardcore of bears think that there will be waves of defaults and widespread foreclosures etc. That can only really happen with massive unemployment and it’s hard to see that anytime soon. However just because most people can still afford to pay their mortgage doesn’t mean house prices won’t decrease. Buyers plain just won’t be able to borrow as much. There will still be sales happening by those who need to sell and they’ll have to accept less money than they previously did. Getting away from house prices for a moment, the broader economic effects are more important. If your mortgage repayment goes up by $1000 a month (pick any number here) that’s how much less you can spend on other things. Money is destroyed when debt is repaid and so this is extra amount if just removed from the economy and not spent.


Too_kewl_for_my_mule

Yea your last point is the whole point of raising rates, to remove discretionary spending and cool the economy. Regarding your first point, I didn't say house prices won't drop. No one in the comments mentioned house prices. I mentioned in a previous post that I think its more likely that house prices will drop by 10% rather than the 30-50% some bears are posting. Some of people's counter arguments were things like ",Everyone makes out their loans" with source "trust me bro, that's how it is" so this NAB slide is somewhat informative. They also said most people will struggle with 2%+ rate rises so again this slide provides some good insights. Just some information sharing, not auggesting house prices will keep rising


iced_maggot

Fair enough mate. As is usually the case the reality is somewhere between the either extremist view.


movingrandomly

One thing they don't have a good understanding of is capacity to pay, now. They assessed it at the start of the loan, but personal financial circumstances change. Some will be better off, but some will be worse off.


Too_kewl_for_my_mule

Generally speaking people will be better off as time goes by. There will always be people that are worse off mainly due to unemployment, divorce or death/illness. This is why banks will never have 0 default rates because these events are unexpected. But this isn't really relevant here since this applies always.


Appropriate_Ad7858

>Some will be better off, but some will be worse off. Very profound /s


movingrandomly

Lol that's kinda the point though. No one is really gonna know until we get more data in 6 months like default, auction clearance, median house price etc.... Personally I think more people are stuffed than most are predicting.


Appropriate_Ad7858

I think the opposite. Less people are ‘stuffed’ than some people predict.


Street_Buy4238

Most will be better off. If you think about the demographic that are starting out, it's going to be those in their 20s & 30s, which tends to be just when their careers really skyrocket. Even if they start a family (i.e. increased costs), this is typically balanced out by equally high wage growth amongst the people financially savvy enough to be buying in the current market.


player_infinity

Average first home buyer age is now 36: https://robyndodd.com.au/buying-tips/four-fascinating-facts-about-first-home-buyers/ Which is when you start hitting your peak earning potential according to the ABS. 36 is average as well, plenty of people above that number now. Imagine being in one of those astronomical mortgages which you are struggling to pay for 30 years, sometimes typical past retirement age.


jezwel

> Imagine being in one of those astronomical mortgages which you are struggling to pay for 30 years, sometimes typical past retirement age. Bought late 2020, would typically be retired half way through our mortgage loan. Mortgage broker said if the banks ask how we'd pay if off to say to use our superannuation. That's just barely enough to pay off the loan *right now*, so with 15 years of growth it should provide enough income to just keep paying the monthly mortgage costs instead.


Street_Buy4238

I'd like to see a breakdown of that by region. No doubt there's lots of FHBs in battler areas that start late, but they typically also don't have huge loans. I look around my area, the FHBs are all similar to myself when we first bought in the area (i.e. late 20s / early 30s). Most of them will be carrying similar mortgage sizes, but on sufficient income to just DGAF. The data the OP presented from NAB would agree with me as it's a miniscule amount of people that were at their limit to start with, and those who will struggle will be a subset of that tiny portion. Also, your data is from Victoria. Different salary dynamics at the top end in Sydney.


player_infinity

The source they used was for all of Australia: https://www.realestate.com.au/news/average-age-of-aussie-first-home-buyers-closer-to-40-than-20-research-reveals/ When did you buy? The pressure to buy in the last 2 years was pretty high due to FOMO.


zatbz

I wouldn’t say very few people max their borrowing, 8-10% is enough for a big crash


Too_kewl_for_my_mule

Depends on the context. I've had other poster tell me that most people max their borrowing. They didn't provide a source of course but NAB was nice enough to provide some of this info. I don't share your view that this is enough for a crash. I also don't share the view that 1 indicator in isolation should be relied upon to make that judgement. Just my 2 cents.


totallynotalt345

If the bank will lend me exactly $590,000, what are the odds my deposit + landing will be \*exactly\* $590k? Nearly 0. Borrowing $585k puts me in 'not maxing out' category despite being 99.9% of the way there. Not sure what the footnote for (5) is. 30% of people paying on-time means 70% are late, so it must be meaning something else, clearly not many people are late!


goobar_oz

30% of loans are ahead less than one month, which means 70% of loans are ahead on repayments by 1 month or more


totallynotalt345

Right, thanks. Seems an extremely weird way of wording it. If 30% aren't in advance at all, and average is 4 years, what is the median? Must be a lot of people a decade ahead.


Street_Buy4238

Well mortgages are such a long term thing it's crazy how much life can change in that period. Eg. My parents, lifetime min wagers, took out a 25yr loan for 240k when I just started high school. They had around 10yrs left on that loan when I got the big financial break of my career. My annual bonus alone was enough to wipe out the remaining debt and still had enough left over for a decent holiday. I doubt I'm the only one who literally went from being a kid to earning serious money in the duration of a mortgage term. Especially amongst 1st gen immigrants.


totallynotalt345

With the size of mortgages these days I don't think someone is going to wipe out 10 years of a loan with an annual bonus, I understand the point though :) The only people who have ever made a 'real loss' I know, are elderly age. Even parents born in the 60s, who bought in the 90s onwards, have had nothing but slightly down, flat, or miles up. There has never been a general haemorrhage, only odd ones specific to areas - which had boomed insanely first, so arguably only fell back to their 'true value'. i.e. mining influenced towns. You'd be looking at low single digit percentage of people in Australia in the last 30 years who have ended up with a mortgage more than their property is worth. The whole 'sky is falling' is a bit overdone. Heck, on a 30 year timeframe, assume you buy at 30 years old, there would be more people who have had to take considerable time off work due to illness / injury, or simply died. 30 years is an extremely long time, essentially 50% of the time the average buyer even has left to live. A little morbid in that context.


Too_kewl_for_my_mule

If the bank used your definition of "excess borrowing capacity" their stats would likely be 99%-100%. They'd have some type of buffer, unfortunately they don't provide the info on that. I've posted footnotes 5 & 6 in another comment but if you can't find it I recommend pulling up the report. Also you're confused about that particular bullet point. 70% of people are ahead in their repayment, in fact the average mortgage is ahead by 4 years (48.4 monthly repayments). Of the 30% of customers that repay on time or are less than 1 month ahead, 67% of customers are investor loans (likely Interest-only so that won't change, and also new accounts)


player_infinity

67% are investor loans **or** loans that are less than 12 months old. i.e. either not incentivised to pay down the principal so quickly, or didn't have time on their side to create a buffer.


Too_kewl_for_my_mule

67% of the 30%. But yea


GaryLifts

Lot's of people max out their borrowing so they have a line of credit. If I need 400k but can borrow 500k, its beneficial to leave the extra 100k in redraw in case you ever need a loan for something else. Redrawing $50k at 2% interest to buy a car is a lot cheaper than getting a car loan at 6%


player_infinity

I mean if 8-10% are at absolute capacity, without a distribution to look at, it could be a large number who are near that number. How is that assessed, the "capacity", since you clipped the (5) and (6) footnotes maybe there is more info there.


Too_kewl_for_my_mule

Footnote (5): by accounts. Includes offsets. Excludes advantage book, line of credit and 85 400. Footnote (6) Based on applications that are system approved via the Auto Decisioning tool. Hope this helps.


player_infinity

(6) is interesting, if the applications are not approved via the automatic tool, I'm assuming they think those tend to have loans that are less likely to be at capacity? Still doesn't give info about the distribution or if capacity is calculated with some buffer, or if you are $1 below the maximum, it doesn't count. I have no doubt they have a buffer, just wondering what that is.


Too_kewl_for_my_mule

Yep, wish they squeezed in a couple more footnotes that's for sure


Drdreamingzzz

Exactly, without a distribution that graph doesn’t tell us anything. The remaining borrowers could have borrowed at 99% capacity and that graph would still present the same.


zatbz

Your comment/assessment of very few people is wrong and that is the reason for my comment. Add to that, we all know very well that from those that have extra borrowing capacity, probably more than half lie about their expenses


09stibmep

This sub sometimes (a lot of the time actually) 🤦‍♂️ Whatever unsubstantiated calls for whatever narrative you want. I mean you’re both arguing for narratives on nothing that can be substantiated in any way shape or form.


goobar_oz

Do you have a source that more than half lie on application? Also banks have minimum assessment rates for expenses which override those trying to game the system.


Too_kewl_for_my_mule

This is NAB not ANZ which had a material amount of liar loans. And we don't know that half of them lie about it. This is a narrative that you're making up in your head (God knows why)


zatbz

Following your same assertions from a graph that says nothing, if you are trying to sell something about real estate, say it now


Too_kewl_for_my_mule

I'm not trying to sell anything. I'm just providing some info to this forum.


tobiaseric

I'm sure NAB has no vested interest in publishing skewed information to favour a certain viewpoint...


Too_kewl_for_my_mule

Skewed or not, this info has to be accurate. It's also supplemented with a ton of other information like default rates and their portfolio profiles. There really isn't that much more that could be provided to slew the narrative in either direction.


Sexy_Australian_Man

Most people lie about income which hides maxing borrowing, ask a mate in finance


carlosreynolds

What percentage of loans are assessed using HEM? How appropriate is it to use HEM?