NZ 1st homebuyers are ScReWeD...

[cantab]

Equity trade-off for bigger home loans
Matt Wade Economics Writer
March 14, 2007
SMH

A NEW mortgage has been unveiled that can boost a home buyer's spending power by a quarter, but the lender keeps 40 per cent of any capital gain.

Australia's first shared equity mortgage in mainland capitals was launched by Adelaide Bank yesterday. Under the scheme, up to 20 per cent of the purchase value of a new home is funded by an "equity finance mortgage".

In contrast to a traditional loan, the lender gets 40 per cent of any future capital appreciation, or 20 per cent of any capital losses, on the borrower's property as a substitute for a traditional interest rate.

The home buyer must have a 5 per cent deposit and the remainder of the purchase price - up to 75 per cent - is funded by a conventional home loan.

Dennis Orrock, from the consumer information firm Infochoice, said it was the most innovative product to hit the mortgage market in the past decade. "It's a product that will have a very broad appeal, especially to middle-class families wanting to upgrade to a bigger home or move closer to work or schools," he said.

The chief general manager of Adelaide Bank, Stephen Small, said the product would target first-time buyers lacking the full finances for entry into the home-owner market. "Equity finance mortgages can be used by borrowers to buy homes that are up to 25 per cent more expensive than they might have been able to afford using a traditional home loan," he said.

But the most important market for the new mortgage may be second-time buyers who want to purchase a more expensive property, or existing borrowers who refinance to reduce their monthly loan repayments.

"Equity finance mortgages can also be used to help existing home owners lower their current monthly mortgage repayments by more than 20 per cent, reducing their ongoing debt servicing costs," Mr Small said.

Under the scheme, the equity finance mortgage lender never owns the borrower's property: the borrower always retains 100 per cent legal equity ownership and title to their home. The equity finance mortgage can be repaid in full by the borrower at any time.

Mr Small expects the equity finance mortgage to account for 10 to 20 per cent of its new lending over the next two years.

The new mortgage was developed with a real estate fund manager, Rismark International, which developed and patented the product.

The equity finance mortgage loans are only available to individuals buying a property to live in. About 80 per cent of properties in mainland capital cities will be eligible.

The equity finance mortgage is based on recommendations made to the 2003 Prime Minister's Home Ownership Task Force, chaired by Malcolm Turnbull - who is now the federal Environment Minister - before he entered Parliament.

The governments of Victoria, South Australia and Western Australia have announced shared equity schemes.

Last week Labor's housing spokeswoman, Tanya Plibersek, said it would consider a federal government role in shared equity schemes to assist low-income earners enter the housing market

http://www.smh.com.au/articles/2007/...722471210.html

[cantab]

A bit more on EFM's

http://www.theage.com.au/articles/20...html?from=top5

[Steve]

quote:Originally posted by aspex

That hardly a patentable idea. Just by changing the mix, you can drive a truck through it.
On the overall effect, it just contributes to further exacerbating the problem that exists.

Yes, but those new 1st homebuyers will fell better having something that they can call their "own"...

[Jess9]

One comment for the market spin yesterday was the rising mortgage defaults in the US. The slump has become reality over that sea...How far behind is NZ? Just wait till that bites here, and banks reduce lending criteria and their exposure to house loans, then all those investors purely in for immediate cap. gain, will have to wait several years... while paying outcashflow each week...less buyers more sellers...what does that mean?

[srotherh]

Looks like it popped in the US
Foreclosures May Hit 1.5 Million in U.S. Housing Bust
By Bob Ivry

March 12 (Bloomberg) -- Hold on to your assets. The deepest housing decline in 16 years is about to get worse.

As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries.

The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.

``The correction will last another year,'' said Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania. ``Fewer people qualifying for mortgages means there will be less borrowers, and that will weigh on demand.''

A five-year housing boom that ended in 2006 expanded home- ownership to a record number of U.S. households. Now it has given way to mounting defaults, failing subprime mortgage companies and an increasing number of unsold homes.

[Crypto Crude]

Christchurch Press weekend Business Section article
House-Price bubble will burst and it will be ugly
David King

The good Dr Alan Bollard, in his never ending search to cure housing market fever, looks to have put his figurative stetho-scope on the problem last night.
The RBNZ governor has pointed the finger to blame, in part at least, at the banks
Rightly so. Where would the housing market be without a friendly banker?....
If the junkies are the everyday property speculators who have ramped up the market by buying two, three or even more rental properties, the dealers are the banks who have kept up a never ending supply of money...
Consider this: House prices have doubled in the last 5 years, while real incomes have risen about 15% in real terms.....
Has that set any alarm bells ringing at the banks? have they stopped lending? whoever heard of a bank that said no?
As if. They smell the profit, and, as one banker admitted, they know it feels like the 1980's sharemarket boom again, but they dont want to get off the train while its going fast.....
Thats because banks love to lend in a hot market, but watch them back off when it cools. If they stop, someone else will eat their lunch for them.....
Theres a fundamental im-balance in the housing market. You dont have to be a rocket scientist to work out what the upshot is. People cant afford the house prices that they are paying.....
Bollards musings about changing the rules on capital requirements covering banks need careful thought though.....
Bankers are already grumbling about them, saying the idea smacks of "Muldoonism".
A concern is the likelihood that tightening rules for the trading banks will open a new market for the already healthy non-bank lending sector.
Just watch the building societies rub their hands together with glee as they watch Bollard truss up their big competitors.....
The banks agrue it is not their fault, and the blame for the housing boom is the Governments. No effective capital gains tax on property, no stamp duty and attractive depreciation rules add up to make property a great investment. as long as the market contiunes rising.....
Economists say Bollard should have raised interest rates much earlier. But wherever the blame lies the fact remains that we appear to be in a bubble.....
When someone pricks it, it is going to be ugly....



SC-I dont generally like the idea of trying to control asset values, but rather prefer open market supply and demand, uncontrolled housing market operations!...

at the moment the margin requirements for the banks is 7%... this means that the bank has to hold 7% of the value of the house in liquid assets....
the bank also has margin requirements on customer cash deposits as it is a liability to the bank....

By simply raising this margin requirement will increase bank costs and they will push this expense onto customer debt payments....
You change the OCR, your impact is far greater than just the housing market...
eg OCR effects exchange rates also....
changing the margin requirement impacts directly on housing....
[8D]
.^sc

[cantab]

Following a massive housing boom in Brisbane there now appears to be another boom looming on the horizon.

Housing market boom
By Leigh Lalonde
March 09, 2007 11:00pm

THE property market is showing all the signs of an impending boom, with auction clearance rates at their highest level in years and houses selling within hours for thousands above the asking price.

.......

http://www.news.com.au/sundaymail/st...011140,00.html

[patsy]

quote:Originally posted by Shrewd Crude


The RBNZ governor has pointed the finger to blame, in part at least, at the banks
Rightly so. Where would the housing market be without a friendly banker?....

And who the f*ck has been feeding banks and borrowers an environment of low interest rates? Where would the housing market be without a friendly RBNZ governor?

[cantab]

quote:Originally posted by patsy
Where would the housing market be without a friendly RBNZ governor?

In the same position as just about every other housing market in the world bar Mugabe's.

[Bel]

Prices are set by supply and demand.

House price demand comes from 2% population growth - number of new houses built per year.

House prices have climbed 9-10% per year for 6? years INCLUDING suburbs with a negative population growth.

In 2001 you could buy a house for on average ~400 ounces of gold. In todays market the average price is... ~400 ounces of gold. In fact houses are more affordable today than they were 30years ago.

When property investors are counting there gains, what is it they are actually counting? Items of value or a valueless IOU with a picture of the behive on it?

PS: CPI Does NOT measure inflation. Repeat untill understood. Inflation = monetary inflation. That's it. Nothing else. Zip nada. Just purely the ammount of $$$ in circulation.

CPI measures (by fudging figures i might add) items of value in comparison to valueless IOUs. A result influenced by, Inflation (+ fudging of figures "oh you can't call that a price increase, the car now comes with a new type of radio") worker productivity, new sources of supply (Chinese slave labour anyone?)compitition, supply and demand (seasonal, technological etc) OMG the list goes ON!

So whenever i see someone says that the the house they bought in Bluff has increased by 400 quad trillion Klingon credits, or monopoly dollars or NZ IOU's i just laugh. (like a loon)

When someone says that the price of there house rose by X ammount of barrels of Oil, bushels of corn, ounces of gold over what they paid because of rezoning, local investments in infastructure and business. THEN i take note and get excited for them.

The rest of them are just full of shiite since as far as i'm concerned there just suckers in the worlds biggest scam.

i.e inflationary tax. Which is why i get annoyed when people recommend taxing the so called gains on inflationary growth.