Home News Australia’s property downturn puts home buyers in double mortgage bind

Australia’s property downturn puts home buyers in double mortgage bind

by admin
0 comment

New homes line a street in Moorebank, a suburb of Sydney, Australia, May 26, 2017. REUTERS/Jason Reed/File Photo

Register now for free, unlimited access to Reuters.com

SYDNEY (Reuters) – A downturn in Australia’s housing market has put many home sellers in double bond: they’re taking out mortgages for new homes, but they’re doing pretty well in their old location. are trading You have a bridging loan to cover your previous mortgage.

And with prices now declining at the fastest pace in 40 years, reversing sharply from the 25% annual price increase seen just a year ago, these bridge loans have a normal tenor of three to three years. It has doubled or quadrupled the month’s duration.

Reuters Graphics

While this is good news for many lenders in a mortgage market where falling home prices and rising interest rates are driving business out, it means more financial stress for borrowers who still have the guts in the market. To do.

Register now for free, unlimited access to Reuters.com

Sydney seller agent Julie Buchanan said she recently extended a marketing campaign for luxury properties from six weeks to three months because of lukewarm buyer interest.

“Many of them have had to revise their price expectations,” she said. “If they can’t get the price, bridge financing is what they use to cross the line. Then they potentially have two properties.”

Most properties are sold within three months of a standard bridge loan. It took him 31 days for the average home in a major Australian city to go on sale in August, but sellers may also factor in a contract settlement time of around six weeks.

Reuters Graphics

But that’s a 63% increase from last November, according to CoreLogic, and home sellers are likely to expect the market to weaken further after four straight months of rate hikes, with the next coming on September 6. It is expected to rise further in the days ahead.

Joe Bennett, senior lending relationship executive at bridge lending firm ASCF, said inquiries increased as interest rates rose, and the average term of loans his firm underwrote increased from three to six months to one. He said he had grown over the years.

“Historically, when the market is hot, they only want that loan for three months because they can list the property this Saturday and sell it by next Saturday,” Bennett said. because he knew

“It’s not happening now.”

The Last Resort is no more

Aaron Bassin, CEO of bridge loan provider Bridget Financial Services, said his firm plans to double its longest loans from six months to a year due to customer demand. .

“If the real estate market continues to slow down, we’re going to need longer term products, which is something we’re working on right now,” Bassin said. was a record month, he added.

Australia and New Zealand Banking Group Limited (ANZ.AX)It is the fourth largest lender in the country.

Homebuyers have typically treated bridging loans as a last resort. This is to effectively leave her two mortgages on the property to buy and the property to sell at the same time. In addition, bridge loans are short-term and require a quick turnaround, resulting in higher interest rates.

But even as retail banks warn of increased competition and shrinking business across mortgages, bridge loan providers say their volumes are soaring.

Government data released on Thursday showed new mortgages fell 8.5% in July, almost double the previous month’s 4.4% decline. The data do not break down individual figures for bridge loans.

Four months of higher interest rates forced all lenders to raise their mortgage rates, but as bridge loan providers narrowed the gap between interest rates and standard mortgage rates, their products may have become more acceptable to borrowers.

“We raised interest rates and prepared for a slowdown, but it’s still going full steam ahead.

“While you might think that the high prices will slow down, we can say that activity in this sector continues to increase.”

Register now for free, unlimited access to Reuters.com

Reported by Byron Kay.Edited by Edmund Cramant

Our criteria: Thomson Reuters Trust Principles.

You may also like