Housing Loan

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<p>GUEST OBSERVER</p>
<p>The “bank of mum and dad” is helping young Australians with more than just their housing aspirations.</p>
<p>New analysis of data on children receiving an inheritance or cash payment from their parents has found they are more likely to be involved in business startups, financial risk-taking and entrepreneurial ventures, and receive other benefits to those without wealthy parents.</p>
<p>The bank of mum and dad is an expression coined to describe parents generously helping their children to get onto the home ownership ladder. We already know that parental transfers are helping Gen X and Gen Y children break into home ownership, in a market considered unaffordable by international standards.</p>
<p>While some are angered by the growing intergenerational wealth divide between the millennials and their baby boomer parents, estimates from the Household, Income and Labour Dynamics in Australia (HILDA) survey show many young people are benefiting from the wealth of their parents.</p>
<p>Between 2002 and 2012, 1.8 million Australians received an inheritance on one or more occasions. There was an average transfer of A$95,000 per beneficiary over the period. An even higher number (5.8 million) received cash transfers from surviving parents. These gifts averaged A$9,000 per recipient.</p>
<p>Housing assets remain the most important component of households’ wealth portfolios. The majority of households will therefore directly or indirectly draw down on housing wealth to finance monetary gifts to others while they are still alive. The family home is also typically the largest asset bequeathed when parents pass on.</p>
<p>Moreover, booming real house prices have boosted inheritances. At the same time, flexible mortgages have enabled parents to dip into their housing wealth to finance cash gifts to their children.</p>
<p>More than a leg up the housing ladder</p>
<p>A recent Australian Housing and Urban Research Institute report has shed new light on how financial gifts from parents help shape young people’s economic opportunities.</p>
<p>The study matches every person benefiting from an inheritance or parental cash transfer to a “control” person who is not a beneficiary, but has otherwise similar personal characteristics.</p>
<p>We found that the bank of mum and dad is helping young Australians with more than just their housing.</p>
<p>Intergenerational transfer beneficiaries are more likely to hold a bachelor’s degree than non-beneficiaries. Among those who receive cash payments from their parents, 29% hold a bachelor’s degree compared to 21% of the control group who do not receive such transfers. Bequest recipients have double the average bank deposit account balance of the matched controls. These larger financial holdings can be used to buffer income shocks, and as collateral to relax borrowing constraints.</p>
<p>Beneficiaries might therefore be willing to take more risks. They are also better positioned to borrow and finance business startups that might not otherwise get off the ground. These ideas are supported by the data.</p>
<p>A higher percentage of those enjoying access to the bank of mum and dad have set up their own business. 22% of heirs to a bequest are self-employed. In comparison, only 16% of the matched controls were self-employed. Similarly, 17% of those receiving cash payments from their parents are self-employed, compared to 11% of the matched controls.</p>
<p>The findings suggest that the bank of mum and dad could play a role in lifting economic growth through multiple channels. These include business startups, financial risk-taking and entrepreneurial ventures.</p>
<p>Bridging an intergenerational divide or widening an intra-generational gap?</p>
<p>It seems the bank of mum and dad is recycling large amounts of housing wealth to the next generation through intergenerational transfers; and it is an increasingly important pillar supporting educational, housing and business opportunities. However, this is a “leg up” that only benefits those fortunate enough to have parents that are able and willing to transfer wealth.</p>
<p>The business opportunities, educational gains and home ownership status that these transfers promote will create a growing divide among younger Australians. Those whose parents own a home are able to take advantage of a wider set of opportunities than others.</p>
<p>As the home ownership dream fades for growing numbers of Australians, this divide will become more conspicuous. Life time renting is a prospect that many Gen X and Gen Y parents are having to contemplate. Unless Australian governments reverse the decline in home ownership, their children will in turn be bypassed by the intergenerational circulation of housing wealth.</p>
<p>These concerns should provide added impetus as governments strive to improve housing affordability, and restore the home ownership society older Australians take for granted. If our governments fail in this regard we could very well witness further entrenchment of inequality in decades to come.</p>
<p><a href="https://theconversation.com/profiles/rachel-ong-113482" target="_blank">Rachel Ong</a> is Deputy Director, Bankwest Curtin Economics Centre, Curtin University.</p>
<p><a href="https://theconversation.com/profiles/gavin-wood-113723" target="_blank">Gavin Wood </a>is Professor of Housing, RMIT University.</p>
<p><a href="https://theconversation.com/profiles/melek-cigdem-bayram-181846" target="_blank">Melek Cigdem-Bayram </a>is Research Fellow, RMIT University.</p>
<p>All are authors for The Conversation.</p>
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Not everyone wins from the bank of mum and dad

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<p>GUEST OBSERVER</p>
<p>ABS figures for November 2016 demonstrate strength in lending for new housing.</p>
<p><span>Lending for new housing - to both owner occupiers and investors - turned in strong results in this latest ABS update.</span></p>
<p><span>The new home building </span><span>sector will continue to provide strong support to the broader Australian economy through the </span><span>first half of 2017.</span></p>
<p><span>The number of owner occupier loans for the construction or purchase of a new dwelling increased by 2.7 per cent in November 2016. Meanwhile the value of lending for construction investment reached a new record on a moving annual basis. </span></p>
<p><span>The new home lending cycle has peaked, but the November results confirm that the elevated volumes of lending we have seen over the last three and a half years remained in play as 2016 neared an end</span><span>. </span></p>
<p><span>T</span><span>hat’s a tick in the box for the Australian economy</span><span>.</span><span><br></span></p>
<p><span>As has been typical throughout this cycle, the profile for new home lending varies widely between states and territories</span><span>. </span></p>
<p><span>Looking beyond just today’s update, it </span><span>is not surprising that New South Wales and Victoria are faring the best overall.</span><span><br></span></p>
<p><span>Compared with 12 months ago, the number of loans for construction and purchase of new homes increased in five out of eight states and territories in November 2016. The fastest annual growth occurred in Tasmania (+28.4 percent), followed by Queensland (+20.0 percent), South Australia (+11.0 percent), New South Wales (+9.9 percent), and Victoria (+9.6 percent). The number of loans for new housing fell in November in the Northern Territory (- 57.9 percent), the Australian Capital Territory (-23.3 percent), and in Western Australia (-9.5 percent). </span></p>
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<p> </p>
<p><em>Harley Dale is chief economist at the Housing Industry Association and can be contacted <a href="https://hia.com.au" target="_blank">here</a>.</em></p>
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New house lending turns in strong result: HIA's Harley Dale

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<p>Lending finance was shaping higher again by July, back up to $71.6 billion in trend terms, to be +6.7 per cent higher than a year ago, and getting pretty close to the highs of 2015.</p>
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<br><div>Commercial lending to businesses picked up, which is generally seen to be a good sign, while housing lending to owner-occupiers hit a record high. </div>
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<br><div>Personal lending commitments are tracking back down at levels not seen since 2002.</div>
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<div>This was mirrored by data elsewhere, with the Reserve Bank's statistical tables showing average credit card balances at their lowest level in nearly a decade. </div>
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<br>This does not fit the stretched household budgets theme.<br><br><div><strong><span style="text-decoration: underline;">Investor juggernaut slowed</span></strong></div>
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<div>Property investment loans are being successfully slowed by regulatory measures, and this is now filtering through into the rolling annual data at the state level. </div>
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<div>Interestingly the credit squeeze may be impacting the states that were already weak more keenly, rather than New South Wales and Victoria, though lending to investors is set to slow across the board. </div>
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Elsewhere, investor loans are rolling over in the nation's capital.</div>
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<br>And in Darwin, err, yikes.</div>
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<br><div><strong><span style="text-decoration: underline;">The wrap</span></strong></div>
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<div>Overall, this was a positive result given the lift in commercial lending to business, while in the property market, lending continues to shift from investors to homebuyers.</div>
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<div>I had a meeting with the brilliant Jonathan Tepper of Variant Perception this week - a considerably smarter fellow than you or I - and it was interesting to compare notes on where Variant sees Australia's economy heading.</div>
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<div>While VP's research reports are confidential to subscribers, their leading index has rolled over on Australia's economy, a major driver of this being the coming downturn in residential construction.</div>
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<br>Westpac's leading index has followed a remarkably similar trend. </div>
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<div>Residential construction made a very positive contribution to the economy is 2016, but by 2018 Westpac sees this as becoming an equivalently significant drag (and although non-residential building has been picking up, this is expected to be less labour-intensive. </div>
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<div>Job advertisements figures suggest that hiring will remain solid over the next 6 months, but it wouldn't be a shock if rate cuts are back on the agenda in 2018 especially after a weak inflation result for Q4 is released to the market early next year. </div>
<p class="p1"><span class="s1">PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank"><span class="s2">AllenWargent</span></a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank"><span class="s2">blogger</span></a>.</span></p>
<h3 class="post-title entry-title"> </h3>
<p class="p2"><span class="s3"><em>His latest book is </em><a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank"><span class="s2"><em>Four Green Houses and a Red Hotel</em></span></a><em>.</em></span></p>
<p> </p>
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Property lending finance picks up: Pete Wargent

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<p>Mortgages nationally are up 1.2 percent from last month according to CoreLogic RP Data.</p>
<p>In Queensland they are down 1.7 percent from last month and up 1.7 percent in NSW</p>
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Mortgage activity nationally up 1.2 percent from last month: CoreLogic RP Data

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<p>A recent report by NAB Economics speculates that 'helicopter money', money sent by a central bank to households or a fiscal stimulus funded by the central bank will be the next 'unconventional' tool used to combat established monetary policy tools that are either ineffective or exhausted.</p>
<p>According to NAB such helicopter money should result in some combination of inflation and real economic growth and has implications for interest rates settings, bank inflation targets and other aspects of central bank policy.</p>
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<p>"The fundamental choice open to a central bank is either to target the quantity of money or the price (‘interest rates’)... the only purpose in changing these rates are to influence market determined rates (i.e. those for home mortgages, business loans etc)," NAB said.</p>
<p> "In the case where the monetary policy is not meeting its existing target – particularly where inflation is too low – helicopter money could be calibrated towards achieving that target rather than a new one. Indeed one of the reasons it is being advocated is the inability of central banks currently to meet their inflation targets.</p>
<p>"The two main ways it is expected to work in boosting the economy are: A direct boost to spending – most obviously when the Government is the ultimate recipient of the money and spends the money on goods and services – or by households lifting their spending (except in the unlikely event they save all the money they are given) and hHigher inflation expectations as a permanent increase in the base money should increase inflation. This in turn should reduce the real rate of interest giving households an incentive to consume now and business to invest.</p>
<p>"Proponents argue that it gets around some of the problems often raised with fiscal policy.</p>
<p>"With normal fiscal stimulus, the Government issues debt on which it has to pay interest. This can give rise to concerns about the future, e.g. of higher taxes causing people to save any tax cuts or cheques they are given. However, with Helicopter Money neither the government or households ever pay the money back and pay no interest. As a result households should see any increase in money they receive as an increase in wealth, or if Government is the recipient, it should be free to spend without adding to fiscal problems.</p>
<p>"Another concern with normal fiscal stimulus is that additional government debt can lead to ‘crowding out’ if higher government borrowing leads to higher interest rates. Again, as the monetary stimulus should put downward pressure on (real) interest rates crowding out is less likely (assuming there are unutilised or underutilised resources in the economy)."</p>
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'Helicopter money' the next monetary policy tool

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<p>Ms Jianyong (Jenny) Mao, of South Brisbane, Queensland, has appeared in the Brisbane Magistrates' Court on a charge brought by ASIC of giving documents to a lender that were materially misleading.</p>
<p>ASIC alleges that in May 2011, Ms Mao caused documents, including banks statements and application forms which were materially misleading, to be given to a lender in support of a home loan application. ASIC alleges that the loan was subsequently granted on the basis of these documents.   </p>
<p>At a hearing on 18 July 2016, the matter was adjourned to 5 September 2016.</p>
<p>The Commonwealth Director of Public Prosecutions (CDPP) is prosecuting the matter.</p>
<h2><strong>Background</strong></h2>
<p>Ms Mao operated a home loan broking company, Diamond Lady Group Pty Ltd (Diamond Lady Group) which held an Australian credit licence from 2010 until 2014. </p>
<p>Ms Mao was charged by ASIC under section 33(2) of the <em>National Consumer Credit Protection Act 2009</em> in relation to her conduct while she was engaging in credit activity. Section 33(2) (the predecessor to s160D) makes it an offence for a person engaging in credit activities to give false or misleading information or documents to another person.</p>
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Former mortgage broker charged with giving misleading information to lender 

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<p>The 30 or more day delinquency rate for Australian prime residential mortgage-backed securities (RMBS) rose to 1.53 percent in the quarter ending 30 June 2016, up from, from 1.50 percent at 31 March 2016, according to research from Moody's.</p>
<p>The Australian RMBS Indices Q2 2016 from Moody's found delinquency rates increased for both prime RMBS issued by major banks and regional authorised deposit-taking institutions (ADIs).</p>
<p>For major bank issuers, the 30+ day delinquency rate increased to 1.46 percent at 30 June 2016 from 1.44 percent at 31 March 2016. For regional ADIs it rose to 2.16 percent from 2.01 percent over the same period. </p>
<p>The total repayment rate for prime RMBS was 24.74 percent at 30 June 2016, lower than the 12-month average of 25.05 percent.</p>
<p>The report suggests Australian prime RMBS delinquencies and defaults will continue to rise through the remainder of 2016, owing to Australia’s below-trend nominal economic growth.  </p>
<p>"Australia-wide, housing affordability — as measured by the average share of income needed to make monthly mortgage loan repayments — deteriorated in Q2 2016 compared with the previous quarter, owing to higher home prices," the report noted.</p>
<p>"Housing affordability improved in Perth and was unchanged in Sydney over Q2 2016." </p>
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30 day prime residential mortgage-backed securities delinquency rate rises

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<p>APRA chairman Wayne Byres' Opening Statement to the House of Representatives Standing Committee on Economics</p>
<p>This is a hearing into APRA’s 2015 Annual Report, which I hope provides a clear and transparent account of our activities. But since many issues discussed in that Report continue to have currency, and the Committee will also want to discuss more contemporary issues, I plan to use my opening remarks to provide an update on a few key areas of APRA’s work since that report was published. More detail will, of course, be provided in our 2016 Annual Report, which will be tabled shortly.</p>
<p><strong>Regulatory framework</strong></p>
<p>APRA’s regulatory agenda in 2016 has been heavily influenced by the recommendations of the Financial System Inquiry (FSI). In particular, we continue to improve the resilience of the banking system to adversity, building on the lessons learned from the financial crisis. In our bailiwick, this has included measures to strengthen bank capital, bolster the stability of bank funding, and facilitate a simpler and more resilient securitisation market. </p>
<p>All of these initiatives are designed to improve the resilience of banking institutions. But even with more resilience, preparing for a possible crisis involving one or more regulated institutions with serious threats to their immediate viability is also a wise investment. We therefore welcomed the Treasurer’s recent commitment to pursue proposed legislative improvements to the statutory toolkit for crisis management, as recommended by the FSI, as a matter of priority. We would also appreciate this Committee’s support when these proposals come before the Parliament. </p>
<p><strong>Housing lending standards </strong></p>
<p>Our supervisory work on housing lending standards has remained a high priority in 2016. There is no shortage of competition for the business of home loan borrowers, but we are keen to see the industry’s competitive instincts directed towards pricing, product features and customer service, rather than pursuing market share by reducing the quality of loans written. Therefore, the goal of our recent work has been to reinforce – and in some areas improve - sound lending standards for housing, particularly in relation to the manner in which lenders assess the capacity of borrowers to service their loans.</p>
<p>In response to our attention, we believe the industry has appreciably improved its lending standards: for example, all material lenders are now assessing borrower serviceability using interest rate buffers of at least 2 percent, and a minimum rate of at least 7 pe cent, and some of the overly generous assumptions in affordability models have been tightened up. We continue to monitor the evolving risks in the property market, and are working to have improved standards firmly embedded into industry practice, so they are not eroded away over time. </p>
<p><strong>Risk culture</strong></p>
<p>For the past couple of years, we have given greater attention to the risk culture within regulated institutions. Risk culture is, in simple terms, the way in which the organisation’s culture shapes its attitude to risk-taking and risk management. Assessing risk culture is no easy task. But if an organisation has a poor attitude to risk-taking and risk management, it can ultimately threaten an institution’s financial viability. We saw examples of poor risk culture at the heart of many failures that occurred internationally during the GFC; before that, the demise of HIH Insurance was an example closer to home.</p>
<p>It is important to note that prudential and conduct regulators – that is, APRA and ASIC – both have a legitimate interest in the culture within financial institutions, but that our respective interests stem from different underlying objectives. ASIC's focus on culture is from the perspective of ensuring fair outcomes for customers and investors. APRA’s focus on risk culture reflects our prudential mandate - that as a result of undesirable behaviours and attitudes towards risk-taking and risk management, the viability of an APRA-regulated institution itself - and in severe cases, financial stability – might be threatened. While we start with different objectives, our shared interest means APRA and ASIC need to work collaboratively on culture-related matters - and we are doing that. </p>
<p>APRA’s work over the past year or so has focussed on how Boards assess the risk culture within their organisation, given the introduction of specific prudential requirements in this area from January 2015. We will very shortly publish an information paper on industry activity in relation to understanding and assessing risk culture. In the year ahead, we will continue to refine our approach and methodologies for making assessments of risk culture within regulated institutions, and be looking more closely at the influence of remuneration arrangements on that culture. </p>
<p><strong>Life insurance claims review</strong></p>
<p>As the Committee knows well, there have been serious allegations of inappropriate and unfair treatment of a number of claimants by The Colonial Mutual Life Assurance Society Limited, trading as CommInsure. While ASIC is dealing with specific customer cases, APRA takes a close interest in such matters, given they can provide important insights into the strength of an institution’s governance, risk management and risk culture. Therefore, working alongside ASIC, we commenced three streams of work:</p>
<ul>
<li>We engaged with the Board and senior management of CommInsure to gain assurance over the robustness and completeness of the independent reviews commissioned to investigate the allegations, and to ensure a focus on stakeholder and community expectations through this process.</li>
<li>We met with the whistleblower that brought the CommInsure matters to public attention, and are considering whether the whistleblowing provisions in the Life Insurance Act 1995, which are designed to prevent the identification and victimisation of whistleblowers, have been adhered to in this matter. </li>
<li>We wrote to the Boards of all active life insurers to seek information about the effectiveness of their governance and oversight mechanisms for matters such as claims handling, benefit definitions, rejected claims and customer complaints. We similarly wrote to a selection of superannuation trustees, as some of the claimants that had experienced unacceptable outcomes were members of group risk schemes via their superannuation funds. Summaries of the key themes from APRA’s analysis of responses to these information requests were released earlier this week.</li>
</ul>
<p>Our work in each of these streams is ongoing.</p>
<p><strong>Concluding remarks</strong></p>
<p>Underlying all of the work I have just spoken about is our firm conviction that a strong, stable and competitive financial sector is essential for the ongoing prosperity of the Australian community.</p>
<p>Importantly, we do not see enhanced safety as necessarily requiring a trade-off with competition. Rather, the two are complementary since only sound financial institutions will be able to support their customers – both existing and new – through good times and bad. Australia needs regulated institutions that make an adequate return for their owners such that they remain attractive to new investment, while at the same time providing products and services to their customers that offer value for money and perform consistently with expectations.</p>
<p>Business models and products that only support the community when times are good do not provide the lasting benefits of competition. Put simply, only sound institutions operating with the interests of their full range of stakeholders in mind, and with a long term perspective, are able to provide real and sustainable service to the community. Through our activities, we hope we are helping to shape the financial system in that direction.</p>
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Industry reacting to APRA's influence on housing loan lending standards: Wayne Byres

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<p class="p1"><span style="font-size: 12.16px;">Bankwest has said it will not take into account negative gearing benefits when determining loan eligibility serviceability.</span></p>
<p>It means investors will not be able to secure as much in any loan application. It also could apply to existing loans.</p>
<p>It follows on from last week’s announcement when the Commonwealth Bank subsidiary said it was not accepting new applications for <a href="https://www.urban.com.au/expert-insights/finance/65099-loans-com-au-woos-investors-amid-cba-bankwest-moves-to-shun-refinancing" target="_blank">refinancing of investment properties</a>.</p>
<p>BankWest has confirmed it will remove the tax advantages of negative gearing when determining whether or not applicants are eligible for investor loans, said a report in <em>The Real Estate Conversation</em>.<span style="font-size: 12.16px;"> </span></p>
<p>The move would mean investors can borrow less from the lender. Also, as another consequence Bankwest would likely be writing fewer investment loans.</p>
<p>The Commonwealth Bank is expected to announce similar moves.</p>
<p>There was speculation in the media that both BankWest and the Commonwealth Bank were close to the 10 per cent growth cap for investor loans set by the Australian Prudential Regulation Authority.<span style="font-size: 12.16px;"> </span></p>
<p>The report cited an <em>Australian Financial Review</em> article quoting Mark Chapman, a director of tax accountants H&amp;R Block, that the rule change would affect existing borrowers.</p>
<p>"The impact of Bankwest's decision on new borrowers is not too bad – they can just borrow through another bank," he said. “But for existing BankWest borrowers, the change is retrospective.”</p>
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