NAB names top postcodes at risk of mortgage default

Story image for nab-names-top-postcodes-at-risk-of-mortgage-default-20150928-gjwb6x from The Australian Financial Review The Australian Financial Review-8 minutes ago A range of Sydney suburbs are in the risky category including Glebe and Chippendale, to Campsie, Kingsgrove, Chatswood, Baulkham National Australia Bank has identified 34 Sydney postcodes where it believes there may be rising risk in the mortgage market, and it will require home buyers to stump up a deposit of at least 20 per cent. The lender has also red-flagged 22 post codes in Western Australia and 11 post codes in Queensland as even higher-risk areas, where it says there has been a "significant deterioration in credit risk." In a note received by mortgage brokers last week, NAB listed more than 80 "restricted postcodes" across the country where it is capping the percentage of a property's purchase price it will lend, known as a loan-to-valuation ratio. Within this group, NAB identified 40 highest-risk postcodes, which were dominated by mining areas in WA and Queensland. Known as "Group A restricted postcodes" these are "areas where significant deterioration in credit risk has been observed," the bank said. In these areas, NAB said it had introduced a cap of 70 per cent on loan-to-valuation ratios for new lending - meaning new borrowers will need a deposit of at least 30 per cent. NAB also included a second group of "Group B" postcodes where it is eyeing future risks and capping LVRs for new lending at 80 per cent. The second group of postcodes takes in "areas which are exhibiting characteristics which may indicate future deterioration in credit risk," the bank said. Sydney highest risk This group was dominated by Sydney suburbs, which accounted for 34 of the 43 postcodes listed in this category. It included a range of suburbs from across city, ranging from inner-city areas such as Glebe and Chippendale, to Campsie, Kingsgrove, Chatswood, Baulkham Hills and Cabramatta. Five Melbourne suburbs were also included on the list of "Group B" areas, including the Melbourne CBD, St Kilda Road Central and Abbotsford. NAB will also cap LVRs at 80 per cent in central business districts of Adelaide, Perth and Brisbane, the note says. "We continually review our risk settings to ensure we're lending responsibly and sustainably. This is a very normal practice for any bank," a NAB spokeswoman said. "We recognise that in any property market, no two suburbs are the same and these strategies take into account a range of economic factors and provide an extra level of caution to our risk settings." While banks commonly take a more cautious approach to mining and one-industry towns, brokers say it is unusual for a bank to adopt such a cautious approach towards suburbs in Sydney. It comes after NAB chief risk officer last month David Gall said the bank had developed a list of 40 hostpots, but it did not identify the areas. NAB said the postcode policy would apply to all new loan applications received that had been received after September 18. The managing director of mortgage broker Homeloanexperts.com.au, Otto Dargan, said the policy may affect first home buyers especially, as they typically had smaller deposits. With Sydney dwelling prices up 17.6 per cent in the last year, Mr Dargan also questioned whether the policy was a vote of no confidence in parts of Sydney. "It could be NAB did this for internal reasons, such as being overexposed in those suburbs. Or it could be vote of no confidence in large parts of the Sydney property market," he said. Read more: http://www.afr.com/business/banking-and-finance/nab-names-top-postcodes-at-risk-of-mortgage-default-20150928-gjwb6x#ixzz3n0YlDlK3 Follow us: @FinancialReview on Twitter | financialreview on Facebook Ask for property listings and purchasing risk free properties in South Australia. ============================= Almost one-quarter of the top 100 postcodes set for mortgage default are in Tasmania. Glenn Hunt by Mark Ludlow It's not just households in Western Sydney and the outer suburbs of Melbourne and Brisbane who are feeling the pressure of paying their monthly mortgage. A compilation of the top 100 postcodes most at risk of mortgage default by consultancy firm Digital Finance Analytics found a wide geographic spread of suburbs across the country where people could face financial collapse when interest rates start to rise. The outer suburbs of Canberra, southern Tasmania, Darwin and southern Gippsland in Victoria are some of the regional areas that have been hit by mix of industrial closure, high unemployment and low wages growth, which leaves resident vulnerable to financial collapse. Digital Finance Analytics principal Martin North said residents of Western Sydney were used to flying close to the wind when it came to household finances. "There are clearly some western Sydney suburbs and inner-Sydney in the top 200 or 300 postcodes but this is about the probability of default," Mr North told The Australian Financial Review. "The probability of default is a complex matrix. It's not just the lower socio-economic areas [like Western Sydney] because they don't have big loans and already have more conservative loan criterias." Mr North said the postcodes where households are at risk are quite often in regional areas with increasing unemployment – and where they may struggle to find another job. "The most difficult thing for a mortgage holder is suddenly losing your job because income goes from a certain level to a lower level and it's quite hard to manage," he said. "Events across Australia impacting on employment are probably the best leading indicator of the probability of default." Many of those in regional areas are also geographically isolated if they lose their jobs – and don't have the same employment alternatives that may be on offer for those living in bigger cities such as Sydney, Melbourne and Brisbane. Two per cent increase poses high risk In a breakdown of the top 100 postcodes, almost a quarter were in Tasmania (23), followed by Victoria (19), NSW (18), Queensland (16), South Australia (14) and Western Australia (5). The closure of manufacturing industries in northern Adelaide, the mining downturn in Western Australia, Queensland and in NSW's Hunter Valley and the public service heartland of Canberra are all mortgage stress hotspots, according to the modelling. There was also an intergenerational element with most of the households at risk of default including those under 35-years-old who have been lured by record low interest rates. "My view is these are households that are maxed-up because of the debt they've got and with current low interest rates they are just getting by," Mr North said. "But if interest rates go up this is where you'll see the first impact. If interest rates are 2 per cent higher it would create significant pain for households. "And the risks seem to be higher amongst younger households. I think people have been lured into the market probably sooner than they should have by lower interest rates and rising property values." The Canberra postcodes of 2902 (Kambah), 2900 (Tuggeranong, Greenway) and 2903 (Oxley, Wanniassa) top the mortgage stress list, with Tasmanian postcodes in the state's north and south rounding out the top 10. Queensland's mining belt of Mackay (postcode 4721), Brisbane's outer suburbs (4131), and the outer-suburbs of Melbourne (Essendon, Tullamarine) as well as Hunter Valley's 2343 scrape into the top 50. The top 100 postcodes are rounded out by more mining towns (Fitzroy and Blackwater in Queensland), the suburban battlers in south-east Queensland's Logan (4128), NSW's Macquarie Fields (2564) and The Ponds (2769). The typical assumptions about mortgage stress is where more than 30 per cent of household income is spent on home repayments. But Mr North said this was too simplistic. He also overlays industry employment data as well as information from credit rating agencies about actual defaults. The National Australia Bank has red-flagged 40 postcodes across the country where business and personal loans are at a higher risk of default, especially when mixed with the stressful combination of rising interest rates and higher unemployment. In its 40 hotspots, NAB is conducting a more stringent assessment of loan applications, including increasing the amount of equity that borrowers require. Reserve Bank of Australia assistant governor Christopher Kent last week said the central bank predicted unemployment would remain high until 2017. ========================== AS HOUSE prices rise globally, in Britain they are soaring. In the past 20 years they have increased by more than in any other country in the G7 (see chart 1); by some measures British property is now the most expensive in the world, save in Monaco. It is particularly dear in the south-east, where about one-quarter of the population lives. According to Rightmove, a property website, at today’s rate of appreciation the average London property will cost £1m ($1.5m) by 2020. In this section Through the roof Build up The China syndrome Back to the comfort zone A transfusion, not a leech Doctors without borders Foundering Down by the jetty The Osborne Doctrine Reprints The booming market weighs heavily on the rest of the economy. People priced out of the capital take jobs in less productive places or waste time on marathon commutes. Young Britons have piled on mortgage debt—those born in 1981 have one-half more of it than those born in 1961 did at the same age—making them vulnerable to rises in interest rates, which are coming. Some will retire before they pay it off. Who is to blame? One oft-cited culprit is rich foreign buyers, who are said to see London property as a tax-efficient investment, or even a way to launder ill-gotten gains. Having bought plum properties, they often leave them empty. Transparency International (TI), a pressure group, identified 36,342 London properties held by offshore companies. Polls by YouGov show that the most popular explanation for high prices is “rich people from overseas buying top-end London property”. The argument does not stand up. For one, the number of vacant houses in England has fallen, from 711,000 in 2004 to 610,000 in 2014. And foreign ownership of houses is rare beyond a tiny corner of the capital. TI says that in Westminster one-tenth of all property is owned by firms in tax havens. But outside the centre things look different; the rate is just 1.3% in posh Islington, for instance, and beyond London it is even lower. Explore and compare house prices in 13 British regions over time with our interactive house-price tool Demand from within Britain exerts a much bigger effect. In the past 20 years the population has grown by 11%, twice the average in the European Union. As in other countries, people are marrying later and divorcing more readily than they did in previous decades, meaning that one in ten Britons now lives alone, boosting the demand for homes. Despite stagnant incomes, buyers have more bite in the housing market. The Bank of England’s base rate of interest has been 0.5% since 2009; in real terms, rates have been below their historical peacetime average since 2004 and in nominal terms they are at their lowest ever. Demand has been stoked by “Help to Buy”, a mortgage-subsidy scheme launched in 2013. Britons have thus taken on masses of cheap debt. In the 1970s it took the average mortgage-holder eight years to pay off his loan, estimates Neal Hudson of Savills, an estate agent. These days it will take 20 years. Small wonder: the average loan-to-income ratio has jumped from 1.8 in 1981 to 3.2 in 2014. And many are not just buying houses for their own use. Outstanding “buy-to-let” mortgages for landlords are now worth £190 billion, more than 20 times their value at the turn of the century. The National Housing and Planning Advice Unit, a former public body, found that 7% of a total increase in house prices of 150% between 1996 and 2007 was accounted for by increased lending to landlords. All this demand has run up against sluggish supply. Over the past 40 years growth in Britain’s housing stock has slowed sharply (see chart 2). In the 1970s local authorities built about 130,000 dwellings per year; they now build 2,000. After Margaret Thatcher’s government allowed local-authority tenants to buy their homes, councils struggled to replace them because they had to set aside most of the proceeds. New restrictions on the amount councils could borrow put another brake on building. According to an estimate from 2008, the public sector owns one-quarter of the land in Britain suitable for residential development, in old garages, ex-military bases and poorly designed council estates. Private housebuilders have been idle, too. Strict planning laws are partly to blame. A quarter of English planning applications for houses are rejected, and even successful ones are often delayed. Protected “green belts”, which are supposed to contain urban sprawl and offer pleasant spaces to city-dwellers, now cover 13% of England. Much green-belt land is far from green: one-third of London’s and three-quarters of that in Cambridge is intensive arable land, estimates Paul Cheshire of the London School of Economics, who says there is enough green-belt land in Greater London to build 1.6m houses. The green belt remains sacred, but George Osborne, the chancellor of the exchequer, has vague plans to make it easier to force through some planning applications in the face of recalcitrant local authorities. Yet even when planning permission is forthcoming, housebuilders have held back. As of October 2013, of the 507,000 units of land with planning permission, half had yet to see any building. For reasons that economists do not fully understand, for 40 years the construction of new houses has been a remarkably stable one-tenth the number of houses bought and sold. Mr Hudson says this relationship probably holds because housebuilders try to sell new-builds at a price in the upper decile of those prevailing in the local market. The number of transactions has steadily fallen since the 1980s, putting a ceiling on the probable number of new-builds. One brake on buying and selling homes is stamp duty, a tax levied on housebuyers. Buying a house costing £430,000 (the average in London) would trigger a tax bill of £11,500, payable immediately. Last year the government changed stamp duty from a flat tax into a graduated one, turning it from a “very bad” tax into a merely “bad” one, in the words of the Institute for Fiscal Studies, a think-tank. Removing it entirely could boost housing transactions by 8-20%, according to different estimates. Also ripe for reform is council tax, a property levy collected by local authorities. Last updated in 1993, it hits residents in cheap areas relatively harder than those in pricey places. (The highest council-tax band in flash Kensington and Chelsea applies to dwellings worth more than £320,000; the average price there is £2m.) With these revenues held down, councils have less incentive to build more homes. And relatively low taxes on the priciest homes encourage people to remain in houses that are bigger than they need, thus reducing the supply of large houses to families. Despite Britain’s acute housing shortage, one-third of households have two or more spare bedrooms. Since coming to power in 2010 the Conservative government has done more to boost demand for housing than increase its supply. Labour, meanwhile, talks about rent controls, which could flatten supply further still. Persuading homeowning voters that more building is needed is hard. “When The Economist’s readers all write in to me having read your editorial and say: ‘Oh yes, and by the way, I’d like a house next to me,’ then we’ll know we’re winning,” says Mr Osborne. Letters should be addressed to the Treasury, London, SW1A 2HQ, before prices get any sillier. ============================================= Oct 1 2015 at 10:21 AM |Updated 25 mins ago Save article | Print Reprints & permissions Melbourne takes Sydney's house price lead Share via Email Share on Google Plus Post on facebook wall Share on twitter Post to Linkedin Share on Reddit NaN of "Fatigue has set in. For Sydney, back in 2001 the market rose for three years and three months then slowed. We are at that point now with Sydney," Corelogic RP Data's senior research analyst, Cameron Kusher said. "Fatigue has set in. For Sydney, back in 2001 the market rose for three years and three months then slowed. We are at that point now with Sydney," Corelogic RP Data's senior research analyst, Cameron Kusher said. Erin Jonasson Share on twitter Share on Google Plus by Su-Lin Tan Melbourne's property market took the lead in September, posting a 2.4 per cent rise in prices, as the Sydney market stalled, CoreLogic RP Data finds. Sydney housing prices hardly moved, rising 0.1 per cent over the month, down from 1.1 per cent while Melbourne grew at 2.4 per cent, up from zero in August. The Brisbane market was a surprise performer rising 1.4 per cent over the month, up from no growth in August. "Fatigue has set in. For Sydney, back in 2001 the market rose for three years and three months then slowed. We are at that point now with Sydney," Corelogic RP Data's senior research analyst, Cameron Kusher said. "Also some of the push to slow down investor lending is working its way in." Across the country, capital city dwelling values rose 0.9 per cent rise in September and 4 per cent lower than the September quarter. The results mirrored auction clearance rates in the major cities. Both Sydney and Melbourne have cooled to clearance rates in the 70s in recent weeks. Mr Kusher said despite the flat conditions in the dwelling prices, the market is still strong with supply just meeting demand. "The rest of spring will be a bit patchy though," he said. Brisbane surprises Strong investor interest and a net growth in population in Brisbane is fuelling some of the rise in dwelling prices for the city. Over the quarter, Brisbane grew 1.9 per cent and 4.6 per cent for the last 12 months. ​While half of Australia's capital cities have seen values rise over the past quarter and year, the other half did not fare as well. In Darwin, dwelling values fell by 3.9 per cent over the 12 months to the end of September, while in Perth, values were 0.9 per cent lower over the year. Adelaide home values dropped by 0.3 per cent, and Hobart values are 0.2 per cent lower. "Weakening labour markets, slower population growth and less demand for housing is placing downwards pressure on prices to differing degrees across these markets," Corelogic's head of research, Tim Lawless said. Yields still low While house prices are cooling, rental yields across the cities remained compressed. The lowest gross rental yields can be found in Melbourne where the typical house is now providing a gross return of just 2.9 per cent, and units are providing a gross return of 4.1 per cent, Corelogic said. In Sydney, gross yields are also at a record low with houses providing a gross return of 3.1 per cent and units yielding 4.1 per cent. "With the first month of Spring behind us, it is clear that housing market conditions are being tested, particularly in Sydney," Mr Lawless said. It is still better to buy than rent in some parts of Sydney. Property valuer Propell tipped Sydney and Melbourne house prices would slow to 5 per cent growth. Read more: http://www.afr.com/real-estate/residential/melbourne-takes-sydneys-house-price-lead-20150930-gjynx8#ixzz3nH0s6gNo Follow us: @FinancialReview on Twitter | financialreview on Facebook