Can overburdened borrowers face higher interest rates?
“While it is sad that people feel the need to mislead or lie on their loan applications, we do not take our clients at their word, and in fact the law requires us not to do so,” Elliott said.
Even so, others more pessimistic about the real estate market, like Digital Finance Analytics founder Martin North, think the ongoing debate over “liar loans” highlights the risk that some people have tried too hard to buy. a property.
“Is it a lying loan, or do mortgage brokers, for example, encourage it to present your information in a particular way because they know how to get it through the system?” said North.
North, who has long worried about high levels of household debt, fears the rate hikes are part of a “perfect storm” that is slowly brewing in housing alongside the rising cost of living , falling house prices and sluggish income growth. North says his monthly polls of 4,500 people show more than a third have cash flow problems, although he also says it will take a few years for mortgage stress to show in full force.
Many market watchers also believe that high household debt will mean the RBA will have to be cautious in raising rates.
Hempton of Bronte Capital puts it this way: “The question is how high can the Reserve Bank drive interest rates up before they cause real pain in this economy? And I think the answer is not very far.
As it stands, the number of people who have problems with the repayment of their mortgage is very low.
On Wednesday, ANZ’s Elliott described its bank’s credit quality as “surprisingly benign”, saying 0.7% of its borrowers were behind on their home loans, compared to the normal 1%.
S&P Global Ratings analyst Erin Kitson says there are a number of “mitigating factors” that mitigate the risks created by rising rates and high mortgage debt.
Unemployment is seen as the biggest driver of mortgage defaults, but is at its lowest level in decades. Banks cut interest-only loans and loans to people with meager deposits. Households have also amassed $240 billion in savings during the pandemic, which can act as a cushion as interest charges rise.
As for “liar loans,” Kitson points to digital advances that have made it easier for banks to verify whether customer requests are factual, by comparing their claims with financial data. “It’s hard to hide that now, because you can see it in borrowers’ transaction history,” she says.
Many in the financial establishment are unconvinced that there will be a major wave of bad home loans. But few people predicted that inflation and interest rates would rise so sharply.
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