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Australian Bankers’ Association responds to reports on mortgage stress
Sydney, 28 July, 2008: The Australian Bankers’ Association (ABA) is keen to ensure the debate about home lending and defaults on mortgages is based on facts.
The ABA is concerned that the projections on mortgage stress by Fujitsu Consulting and Wizard Home Loans are inflated by double counting and inclusion of investor and developer properties.
In the current environment, it is important that accurate and factual information is provided to decision makers, lenders and the general community.
David Bell, Chief Executive of the ABA, said: “There is no doubt there is mortgage stress and that it has been increasing as interest rates rise, however, it appears their projections are significantly over estimated. At this time, it is important that measures provided on this crucial issue are robust and help inform the wider community.”
“A measure which can be used to help the community understand mortgage stress is the level of arrears – that is people who are behind on their home loan repayments. While arrears have been rising, these measures are still at low levels.”
The ABA has the following concerns with the Fujitsu/Wizard Home Loan projections:
- It is difficult to reconcile the projections against official Australian Bureau of Statistics (ABS) data. Using ABS numbers of households purchasing their home, the projection of one million households expected to experience some form of mortgage stress by December appears grossly exaggerated. Based on ABS data, around 2.7 million households are purchasing their home, 2.6 million households own their own home, and around 2.2 million are renters.
- Double counting - the seven million active mortgages referred to1 include people who have multiple mortgages. For example, while one household may be paying off their home only, another household may be paying off multiple mortgages on investment properties and/or their home. For people with split mortgages – one part in which a variable interest rate applies and the other part is a fixed rate, this is counted as two mortgages. These points highlight that if one mortgage is equated to one household, then the mortgage stress projections will be inflated.
- Inclusion of investment properties - to include investment and developer properties in an indicator of mortgage stress is not consistent with recognised measures of housing stress and housing affordability. Furthermore, if investors are included, duplication may arise where one person may have mortgages over several investment properties. Hence, if investor data are not appropriately adjusted for multiple dwelling ownership, the results will be inflated.
- The assertion that every 25 basis point increase in interest rates will push 150 000 households into mortgage stress appears inconsistent with Reserve Bank arrears data. Over the last six months, where there has been the equivalent of six interest rate increases of 25 basis points, banks’ arrears have been slowly rising but not to the extent that one might expect under the Fujitsu/Wizard Home Loan stress scenario.
For further information:
Heather Wellard
Director Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
ENDS
[1] “One Million Stressed Households by Christmas”, media release by Wizard Home Loans and Fujitsu Consulting issued on 24 July, 2008 |
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