% of fixed loans

Nov-2001 5.1
Nov-2002 6.9
Nov-2003 15.2
Nov-2004 11.6
Nov-2005 14.7
Nov-2006 21.3
Jan-2007 20.5

So for the past 12 months 20% of all loans written have been fixed - so the rate rises have not ‘bitten home’ yet for these people.

Also of interest the fixed rate loans are larger than average by about 5% (fixed avg $232k, all average $223k).

may have some effect on the timing of the ‘crunch’.

Does Australia have a similar problem in the future as fixed rate and ‘honeymoon’ loan rates are cranked up to the variable after 12-36 months.

Is there any data on the number and timing of these types of products in Australia, and hence when they may come up for renewal.

This could provide a lag in the repayment of the debt bubble and cause a ‘cover up’ of the extent of loan repayment pain as current rate rises do not effect all borrowers yet but will in the future.

Chris

A half-baked one would be less than useful: not only would I leave lots of detail out, but it could be used later to build a “straw-man” version of my views. I’m experienced enough in the world of academic and political debate to know that it would be unwise of me to supply the straw.

So if you can wait 2-3 months, I’ll give a detailed answer in a Debtwatch report. My next one (April) will focus on the astounding reality–which I only just realised myself after downloading the US data–that our rate of growth of mortgage debt has been twice theirs. So much for the benefits of a superior regulatory regime…

One area that has me stumped is bank valuations. I always thought that bank val’s were more conservative than RE val’s - often by 20-30%. ‘A bank will not loan more than what they think they could sell the property for’. That can not be so anymore. If RE values are rising, bank val’s must be rising at the same rate to allow ppl to finance their homes.

That would mean that bank valuations are as inflated as all other property prices and therfore subject to possible correction - that would expose banks to more risk than their books may suggest.

I am not sure how mortgage insurance works - it may cover the bank for loss during a forced sale - but is there a limit and could banks be seen as irresponsible if they increase valuations simply to allow credit to be provided.

Any comments?

“Bluestone Mortgages, a provider of non-conforming mortgages, told the Australian that the company had been in discussions with some banks about providing arrears-management services. Bluestone chief executive Alistair Jeffery said “there is a bus smash waiting to happen in terms of the pricing of the risk that some lenders are taking on and the lack of preparedness to handle the arrears.”
http://www.mortgagemaestro.com.au/news/140/0

From yesterday:

“Alistair Jeffery, chief executive of lender Bluestone, said arrears had risen with higher interest rates, but remained “well within expectations”.
“No markets are immune to stresses such as this and we would all be deluding ourselves if we thought that Australia was a haven where these sorts of stresses can’t bite,” Mr Jeffery said.”
http://www.theage.com.au/news/business/risky-loans-hurt-but-australia-still-better-off-than-us/2007/03/14/1173722558475.html

Here are my questions – who is going to be left naked when the tide goes out? Have the non-bank lenders packaged and sold all or just some of their loans, and to whom? What about the banks? Is my superannuation fund going to take a hit? Are the investors who purchase mortgage backed securities protected by buy-back provisions similar to those that have bankrupted so many mortgage originators in the US?

Apart from that, in one sense, all other bets are off. There is such an accumulated degree of dislocation in world financial markets now that predicting any other consequence is very difficult. Japan 1990-2005 gives the best recent historical perspective we have, but the many differences between Australia and the US’s situations and Japan’s then complicate the picture enormously.

So our bubble has grown at, to hazard a guess, twice the rate of the USA’s over the last fifteen years. Whatever less informed commentators might want to argue about our higher quality of regulation, this phenomenon has clearly crept under their radar.