How investors find themselves in a “mortgage prison”

Speaking on a recent episode of The smart real estate investment fair, Peter White AM, Managing Director of the Finance Brokers Association of Australia (FBAA), shared insight into how the industry expects the APRA mortgage crackdown to play out in the housing market Australian, warning that “there is going to be a collateral impact somewhere.”

For his part, White said he hopes the 50-point increase in the floor rate is enough to have an effect on the rapid rise in prices, and APRA will not feel the need to intervene. any further.

According to him, it will likely take six to 12 months of house price feedback before the regulator indicates whether other regulatory levers are likely to be pulled.

But he expressed concern that even the current changes could negatively impact homeowners and investors across the country.

“What we need to watch out for with APRA is that this is a holistic approach to servicing a loan,” White said. “There are impacts, and they will affect more investors who do developments, which could be small development projects for the first-time homebuyers market, who suddenly might not comply with the new regime. interview, ”he said as an example. .

Buyers who have set their sights on purchasing these new buildings could also get stung.

“People who buy back the plan, when the reassessment is done before the settlement, may suddenly not be able to afford [the home], “he explained.

Mr White is urging politicians and regulators to closely monitor how the changes, which took effect this month, play out in real life situations.

“We understand and don’t necessarily disagree with any part of this decision,” White said, but added that in this case the story holds an important lesson. “We don’t want to see what happened when APRA changed the floor rates at the time, which had a pretty disastrous effect. ”

One of those effects, he said, is that borrowers essentially become “mortgage prisoners” in their home loans.

This happens when rates move and homeowners look to refinance for a better deal, only to find that “you can’t move your loan because you don’t meet new service floors,” Mr. White. “And financially, you are probably paying more than before.”

It’s a catch-22 that lets people pay more for a financial product than they need to, but no way out.

“We have to watch this mortgage prisoner game. We need to monitor what is happening with the first-time homebuyers market and also the refinance market, ”White said, urging industry leaders and regulators to monitor the situation closely.

“It’s one of those things that it’s a tricky step, and one that can have unintended consequences and landmines that weren’t the intention of what I was trying to do.”

Listen to the full conversation with Peter White here.

RELATED TERMS

Mortgage

Mortgages are loans that are used to purchase homes and other real estate where the property itself serves as collateral for the loan.

Mortgage

Mortgages are loans that are used to purchase homes and other real estate where the property itself serves as collateral for the loan.

Property

Property refers to something tangible or intangible over which an individual or business has legal rights or ownership, such as houses, cars, stocks, or bond certificates.

About the Author

Juliette Helmke

Based in Sydney, Juliet Helmke has extensive reporting and writing experience in business, technology, entertainment and the arts. She was previously editor-in-chief at New York … Read more

How investors find themselves in a “mortgage prison”



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Last updated: November 12, 2021

Posted: November 12, 2021