Money Up to 1 million households set to go into mortgage default by September, analyst warns

05:55  11 july  2018
05:55  11 july  2018 Source:   abc.net.au

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Identification. The mortgage contract specifies your payment due date as the first of the month but includes a 15-day grace period. After 30 days of missed payments, your mortgage falls into default and the lender reports this status to the major credit bureaus.

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One analyst tips the big four will raise interest rates by September.© Provided by ABC News One analyst tips the big four will raise interest rates by September.

Up to 1 million Australian households could be at risk of mortgage default by September.

That is the warning from one independent analyst if the big four banks do what many fear they will do and increase their standard variable rates rise by as little as 0.15 percentage points over the next few months.

"I'm almost certain they'll be forced to lift those rates, it's a question of timing, and of course the political reaction when it happens," Digital Finance Analytics principle Martin North said.

A significant portion of Australia's banks have already started to lift their interest rates.

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Student loan borrowers, herded into default , face a relentless collector: the U.S. “I didn’t think it was going to double up or stack up , or cause me to lose the It’s a situation Johnson shares with many of the 8 million borrowers in the United States who are in default on a combined 7.4 billion in

Analyst Interviews. Full Episodes. The mortgage interest deduction is already capped at loans up to $ 1 million if you're married and filing jointly, and at 0,000 if you file separately. Only about 40 million (or 22.5 percent) of the 173 million households in the U.S. benefit from the mortgage

Macquarie Bank — not one of the big four, but with similar access to funding as the big four — will raise variable rates on its owner occupier loan products for those paying principal and interest by 0.06 percentage points on Friday.

Those paying off interest-only loans will have their rate increased by 0.10 percentage points.

It follows similar moves by AMP, Bank of Queensland, Suncorp, and ME Bank.

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The dollars and cents that go into moving vary greatly depending on a number of factors. Check the latest mortgage rates. Get home design inspiration. Connect with a local agent. Almost one -quarter (23 percent), a total of nearly 14 million households , say they’re not moving because they plan to

But it also caps the mortgage deduction at 0,000 instead of $ 1 million and limits deductions of property taxes, which might hurt expensive Homebuilders have a lot going for them, said Carl Reichardt, an analyst for BTIG LLC. China Set for Record Defaults , and Downgrades Tip More Pain.

So the big question is, when will the ANZ, Westpac, CBA and the NAB move their rates higher?

"I think that by September we will see these rate rises in place, unless the international financial markets change direction quickly," Mr North said.

"The pressure is building and it will continue to build.

"We're going to see the Federal Reserve raising rate further in the US.

"We've seen the funding costs really not adjusting back very quickly, so I think they've probably got to do something."

What will Australia's biggest home loan provider do?

The Commonwealth Bank is Australia's biggest home loan provider.

The ABC asked the bank's chief economist, Michael Blythe, if he could shed some light on when the CBA would make its move on interest rates.

"Well look all banks are facing the same issue," Mr Blythe said.

"Part of that funding pool that they draw on, be it domestically or overseas, we have seen some upwards pressures on interest rates in those areas."

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According to the Kushners, they put 0 million into the purchase. They then took out a mortgage and hundreds of Then, as the 2008 financial crisis set in, rents, instead of going up , went down. Such a company manages a property loan when the borrower is in danger of falling into default .

If the U.S. economy is performing well, then why can’t 51 million households in the United States “afford basics like rent and food”. In some of the wealthiest areas of the nation, homes are now selling for up to 100 million dollars, but meanwhile tens of millions of families are barely scraping by

Queensland Investment Corporation's director of research, Katrina King, was a little more forthcoming.

She explained that the banks are facing increasing pressure from shareholders to maintain their profit margins, and that means they will raise their rates soon.

"I think that they do have to listen hard to their equity investors, and with their cost of funding increasing, this may be some way to alleviate the pressure on their net profit, and the expectations for their profit, and be able to reward their shareholders," she said.

"So the pressure's certainly there."

Ms King said most households could relax though because she expected interest rates to only move up a fraction from where they are now.

"With the sort of funding pressure we've seen in the front end, they may only need to raise rates 7 to 10, maybe 15 basis points (0.15 percentage points) in order to alleviate the pressure on them."

'975,000 … are right on the edge now'

Mr North is not as relaxed as Ms King.

He said he expected the big four will increase rates on standard variable mortgage rates by at least 10 to 15 basis points, or 0.15 percentage points, to cover the increase in their cost of funding.

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Tax plan caps property deduction at ,000, puts new limit on mortgage deduction. The plan maintains the existing top bracket of 39.6% for households earning more than $ 1 million , Brady said.

The thinktank's analysis , based on official Office for Budget Responsibility projections, warns : "Far "When rates go up , the number in 'debt peril' could increase to anywhere between 1. 1 million and two Yet one in six households are currently mortgaged to the hilt, servicing home loans that are at

Mr North has been quoted widely warning of the dangers of raising interest rates while many Australian households are already suffering mortgage stress.

He warned a 0.15 percentage points increase in interest rates would push roughly a million Australians into mortgage default.

"Today 975,000 households across Australia with owner-occupier mortgages are right on the edge now," Mr North said.

"And there are around 50,000 who are already over the edge and are looking like they could default.

"If rates went up by 0.15 percentage points, that would go up closer to the round million."

'This is all part of building more pain in'

The mathematics are not complicated.

In Sydney, for example, a household with a $750,000 mortgage would have to pay an extra $60 a month if their interest rate rose by as little as 0.10 percentage points.

"But it's that marginal borrower, it's the borrower who is already up against it, who's got little wiggle room, who's already struggling with childcare costs, fuel costs, electricity costs," Mr North said.

"Even a small rise, and remember that the income growth is nowhere, and costs are beginning to rise, so this is all part of building more pain in."

The Reserve Bank has made it clear it is in no hurry to raise interest rates.

But Australia's banks do not just follow the Reserve Bank's moves on rates; they are also dependent on interest rate rises in other money markets.

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But around 3.2 million households – almost a third of the 11. 1 million with a mortgage – are Standard variable rates are the default loans offered by lenders. 'If interest rates go back up to around 4 per cent then unless the margins come down on SVRs households will be paying 8 per cent.

The cost of sourcing funds is rising overseas, especially in America.

But the cost of borrowing money domestically, from within Australia, is also rising.

That is because the Trump administration has asked many major US companies to pull out from offshore investments, including in Australia, as part of its tax policy.

As companies like Google and Microsoft withdraw funds from Australia's money market, the price — or interest rate — of the remaining funds goes up.

"It's become significantly more expensive for Australian banks to fund themselves," Ms King said.

"For example, a three-month bank bill swap rate [short-term money market] was about 1.7 per cent through most of 2017, and is now 2.1 per cent, so it's costing them a lot more to fund."

It raises the question of whether the nation's central bank will actually step in to ease the pressure on Australian households by cutting the cash rate.

AMP Capital's head of investment strategy, Shane Oliver, argued that the Reserve Bank may well be compelled to cut interest rates, and not just to relieve household debt stress, but also to keep the entire economy afloat.

"It's hopeful that the consumer will eventually come to the party," Dr Oliver said.

"The risk is that'll take longer than expected, and the Reserve Bank will have to stay on hold for a lot longer.

"In fact we don't see the RBA raising interest rates until 2020 at the earliest, and I'd have to say, you still can't rule out the next move being a cut, rather than a hike."

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