tag:theconversation.com,2011:/nz/topics/mortgage-market-55544/articlesMortgage market – The Conversation2023-05-17T10:46:24Ztag:theconversation.com,2011:article/2053362023-05-17T10:46:24Z2023-05-17T10:46:24ZMortgage lenders are relaxing their rules – here’s why that could be risky for borrowers<figure><img src="https://images.theconversation.com/files/526553/original/file-20230516-17-melcmo.jpg?ixlib=rb-1.1.0&rect=137%2C47%2C3856%2C2443&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Budgeting to buy a home.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/buying-selling-houses-real-estate-prices-1032268546">Tero Vesalainen/Shutterstock</a></span></figcaption></figure><p>The Bank of England increased its base rate yet again in May 2023 to 4.5%, pushing borrowing costs to the <a href="https://theconversation.com/bank-of-england-interest-rate-rise-why-this-could-be-the-last-increase-for-a-while-205337">highest level in almost 15 years</a>. More than <a href="https://www.bankofengland.co.uk/financial-stability-report/2022/december-2022">6 million UK households</a> will now see their mortgage payments increase by the end of 2025, with more than <a href="https://www.bankofengland.co.uk/financial-stability-report/2022/december-2022">4 million</a> experiencing this in 2023.</p>
<p>For an average household this would mean an increase from <a href="https://www.bankofengland.co.uk/financial-stability-report/2022/december-2022">£750 to £1,000 in monthly payments</a> – or around 17% of average pre-tax income compared to 12% in June 2022. As the pressure of increasing interest costs, as well as rising house prices, weighs on households, mortgage lenders are developing and offering borrowers different kinds of products in response. </p>
<p>UK lender Skipton Building Society <a href="https://www.skipton.co.uk/press-office/press-release-article?BlogID=%7B13A47958-66DB-4D1A-B686-F7BFCF3FD742%7D">recently launched a 100% or no-deposit mortgage</a> as “a lifeline to tenants across the country, to help them break out of their trapped rental cycles and onto the property ladder for the first time”. Alternatively, <a href="https://www.ftadviser.com/mortgages/2019/06/26/most-mortgages-now-have-40-year-terms/?utm_campaign=FTAdviser+news&utm_source=emailCampaign&utm_medium=email&utm_content=">home loans that last as long as 40 years</a> – so-called <a href="https://www.thisismoney.co.uk/money/mortgageshome/article-12079901/63-000-thats-extra-cost-150-000-marathon-mortgage.html">marathon mortgages</a> – are on the rise. They can make it easier for some people to get on the property ladder by stretching out payments over a longer period.</p>
<p>But mortgage lending criteria were <a href="https://www.tandfonline.com/doi/full/10.1080/14616718.2011.548585?scroll=top&needAccess=true&role=tab&aria-labelledby=full-article">tightened for good reason after the 2008 global financial crisis</a>. And while these recent relaxations may be designed to help struggling would-be borrowers trapped in rising interest rate, rent and house price hell, hopeful homeowners should be very cautious about the risks involved.</p>
<h2>Long-term loans</h2>
<p>Prior to 2007, mortgage terms were rarely longer than 25 years. Only about 21% of first-time borrowers and 8% of remortgages opted for such a long term in December 2007. While <a href="https://www.zoopla.co.uk/discover/property-news/uk-lender-offers-40-year-fixed-rate-mortgage/">one lender</a> started offering a 40-year fixed rate product at the end of 2021, marathon mortgages are long-term loans but don’t typically offer a fixed rate for the length of the loan. By 2022 more than 55% of first-time borrowers and 34% of remortgagers had <a href="https://www.ukfinance.org.uk/system/files/2023-03/Household%20Finance%20Review%202022%20Q4.pdf">home loans with terms of more than 30 years</a>.</p>
<p><strong>Mortgage terms are getting longer</strong></p>
<p>This recent resurgence is most likely due to the affordability benefits of marathon mortgages. <a href="https://theconversation.com/five-ways-to-reduce-your-mortgage-repayments-in-2023-and-why-rates-have-risen-so-high-196327">Extending the term of a loan allows borrowers</a> to stretch out the repayment costs of a mortgage over time. It also allows people to purchase a more expensive home – an important benefit in today’s market where average house prices have rocketed from £190,000 in 2009 to just shy of £300,000 in 2023.</p>
<p><strong>House prices have been rising</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/526300/original/file-20230515-25-mdvsxb.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line chart showing rising UK average house prices since 2005." src="https://images.theconversation.com/files/526300/original/file-20230515-25-mdvsxb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526300/original/file-20230515-25-mdvsxb.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=339&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526300/original/file-20230515-25-mdvsxb.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=339&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526300/original/file-20230515-25-mdvsxb.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=339&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526300/original/file-20230515-25-mdvsxb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=427&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526300/original/file-20230515-25-mdvsxb.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=427&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526300/original/file-20230515-25-mdvsxb.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=427&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/previousReleases">Office for National Statistics UK House Price Index</a></span>
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<p>Long-term mortgages also help borrowers qualify for mortgages under the <a href="https://www.fca.org.uk/news/press-releases/new-mortgage-rules-come-force">stricter affordability rules</a> introduced by the UK’s financial regulator in 2014. These rules require lenders to ensure that borrowers have sufficient monthly income to cover living expenses and other debts after their mortgage payments. </p>
<p>Spreading the cost to around 40 years allows marathon mortgage holders to reduce monthly costs, passing affordability assessments. Marathon mortgages do not seem to be a current concern for the regulator.</p>
<p>Of course, a marathon mortgage borrower could shorten their term over the years as they remortgage to avoid the lender’s standard variable rate. Also, if the base rate decreases over time, interest payments will fall and the overall mortgage will become more affordable. And, of course, any future increase in income allows a borrower to overpay during the term of the loan.</p>
<p>On the the other hand, long-term borrowing means significantly higher interest payments. For example, <a href="https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/">a household borrowing £250,000 at a rate of 5% for 25 years</a> would pay a total of £188,600 in interest over the lifetime of the mortgage (assuming, for simplicity, that the interest rate does not change over the life of the mortgage). But borrowing for 40 years would result in total interest payments of £328,930 – a staggering £140,330 difference.</p>
<p>Marathon mortgages may also mean borrowers must make repayments <a href="https://www.ukfinance.org.uk/system/files/2023-03/Household%20Finance%20Review%202022%20Q4.pdf">well into their 70s</a> considering the <a href="https://www.money.co.uk/mortgages/first-time-buyer-mortgages/statistics">average age for first-time buyers outside London is now around 33</a>. For some this may mean continuing to pay a mortgage into retirement. This should be a key consideration when considering long-term borrowing. It would certainly impact financial security after retirement so careful planning and independent financial advice is crucial.</p>
<figure class="align-center ">
<img alt="Hands cupped underneath chart showing rising house values." src="https://images.theconversation.com/files/526552/original/file-20230516-24-pw785y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526552/original/file-20230516-24-pw785y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526552/original/file-20230516-24-pw785y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526552/original/file-20230516-24-pw785y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526552/original/file-20230516-24-pw785y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526552/original/file-20230516-24-pw785y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526552/original/file-20230516-24-pw785y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/rising-house-sales-concept-742144642">Sasun Bughdaryan/Shutterstock</a></span>
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<h2>No-deposit mortgages</h2>
<p>Rising rents, coupled with <a href="https://www.ft.com/content/0ebcf348-a664-442c-9311-5443e2d80f53">soaring prices of other essential expenses</a> such as food and energy bills, have left many first-time buyers struggling to save for a deposit. No-deposit products help first-time buyers break this cycle by swapping rental costs with mortgage payments, allowing them to eventually own their home. </p>
<p>Skipton Building Society’s recent launch of a <a href="https://www.skipton.co.uk/mortgages/track-record-mortgage">“100% mortgage”, which means borrowers don’t need a deposit</a>, aims to help first-time buyers of homes of up to £600,000 get onto the property ladder. </p>
<p>Such products were commonly available before the 2008 financial crisis. But the sharp fall in house prices since – mainly the 20% drop between 2007 and 2009 – <a href="https://www.ft.com/content/f067f31e-56c8-11de-9a1c-00144feabdc0">is reported to have left around a million households stuck in negative equity</a>. This is when your home is worth less than the mortgage you owe on it, leaving you unable to sell your properties.</p>
<p>The danger now is that the average house price today is much higher than the pre-financial crisis period (£300,000 versus £190,000). So, if such price drop were to happen in the near future, the impact would be even more devastating for no-deposit mortgagers. Although a crash does not seem to be on the cards, <a href="https://www.halifax.co.uk/assets/pdf/april-2023-house-price-index.pdf">downward pressure on house prices is expected</a>. </p>
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<p>
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<strong>
Read more:
<a href="https://theconversation.com/uk-house-prices-history-says-the-market-is-in-for-a-long-slowdown-not-a-crash-186072">UK house prices: history says the market is in for a long slowdown not a crash</a>
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<p>As we experienced in the aftermath of the 2008 financial crisis, relaxed lending criteria combined with borrowing beyond means can have dire consequences. It’s important for borrowers to be aware of these risks and to be very cautious when thinking about borrowing for the long term, particularly without a deposit.</p><img src="https://counter.theconversation.com/content/205336/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alper Kara does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New mortgage products designed to help struggling first-time buyers hark back to the pre-2008 market and so should come with a warning.Alper Kara, Professor and Head of Department - Accounting, Finance and Economics, University of HuddersfieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1888172022-08-31T01:54:14Z2022-08-31T01:54:14ZI’m considering an interest-only home loan. What do I need to know?<figure><img src="https://images.theconversation.com/files/480308/original/file-20220822-54947-qmv2tv.jpg?ixlib=rb-1.1.0&rect=0%2C29%2C3992%2C2958&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Chuttersnap/Unsplash</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>An <a href="https://moneysmart.gov.au/home-loans/interest-only-home-loans">interest-only home loan</a>, as the name suggests, is where you only pay the interest on a loan and not the principal (the original amount you borrowed).</p>
<p>While authorities such as the Reserve Bank often <a href="https://www.rba.gov.au/speeches/2018/sp-ag-2018-04-24.html">see</a> them as risky, interest-only loans can be helpful in some circumstances.</p>
<p>If you’re considering an interest-only loan, here’s what you need to know.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/more-rented-more-mortgaged-less-owned-what-the-census-tells-us-about-housing-185893">More rented, more mortgaged, less owned: what the census tells us about housing</a>
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</em>
</p>
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<h2>How long do they go for?</h2>
<p>These loans are typically last for five years at most, before reverting back to principal and interest (where you have to pay back, through regular payments, both interest and the initial sum you borrowed).</p>
<p>You could potentially apply for another interest-only loan after your first one winds up, perhaps by refinancing (where you take a new mortgage to repay an existing loan). But you might not get it – and you’d still have to pay off the principal eventually.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Interest-only loans can cost you a lot more in interest over time than a regular principal and interest loan.</span>
<span class="attribution"><span class="source">Photo by Andrew Mead on Unsplash</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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</figure>
<h2>What are the upsides of an interest-only loan?</h2>
<p>An interest-only loan means you’ll have more cash available to cover other costs, or invest elsewhere.</p>
<p>You can use a <a href="https://moneysmart.gov.au/home-loans/mortgage-calculator">mortgage calculator</a> to work out how much extra cash you’d have if you switched from a principal and interest loan to an interest-only loan. It’s typically hundreds of dollars per week. </p>
<p>This may get you a bit more wriggle room for daily expenses. Or, some people use the extra cash to invest in other things – such as shares – in the hope they can make more money overall and pick up some tax benefits along the way. That’s why interest-only loans are often popular among <a href="https://moneysmart.gov.au/home-loans/interest-only-home-loans">investors</a>. Of course, this strategy comes with risk. </p>
<p>An interest-only loan may also have a redraw facility, allowing you to add extra payments into the loan (above and beyond the interest) if you want, and withdraw money later when you need cash. This can allow people to avoid a personal loan, which usually has a much higher interest rate.</p>
<p>Regular principal and interest loans may also have a redraw facility but the regular payments of principal are unavailable for redraw. That means less flexibility for the borrower. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=408&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=408&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=408&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">What’s right for one borrower won’t be for the next.</span>
<span class="attribution"><span class="source">Image by Pfüderi from Pixabay</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<h2>What are the downsides?</h2>
<p>The interest rates on interest-only loans are generally higher than principal and interest loans.</p>
<p>For example, the RBA July 2022 <a href="https://www.rba.gov.au/statistics/tables/xls/f05hist.xls">indicator rate</a> for owner-occupier interest-only rates is 6.31%.</p>
<p>But the equivalent variable rate for principal and interest loans is 5.77% (the indicator rate is just a guide; the actual difference varies from bank to bank).</p>
<p>Interest-only loans can cost you a lot more over time than a regular principal and interest loan.</p>
<p>This means a borrower needs to manage their finances well to ensure they can cover the interest payments now and still have enough to pay down the principal eventually. So you’ll need a plan for how you’re going to do that when the interest-only loan ends.</p>
<p>There is also a risk of a shock – such as job loss, personal crisis or housing crash – causing the borrower to default on the loan altogether. </p>
<p>If the borrower defaults on an interest-only loan, they may lose the house and the bank is left with a debt that was not substantially repaid (because the borrower had not yet made a dent in the principal). It’s a lose-lose situation.</p>
<h2>Are interest-only loans common?</h2>
<p>Interest-only loans represent <a href="https://www.apra.gov.au/news-and-publications/apra-releases-quarterly-authorised-deposit-taking-institution-statistics-11">11.3% of all home loans</a> in Australia.</p>
<p>This figure has been <a href="https://www.rba.gov.au/publications/fsr/2017/apr/box-b.html">trending down</a> over the past five years, due in part to tighter <a href="https://www.apra.gov.au/news-and-publications/apra-to-remove-interest-only-benchmark-for-residential-mortgage-lending">lending restrictions</a> and the fact low interest rates have made principal and interest loans relatively cheap recently.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Interest-only loans represent 11.3% of all home loans in Australia.</span>
<span class="attribution"><span class="source">Image by sandid from Pixabay</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>What does the research say?</h2>
<p>One Dutch <a href="https://link.springer.com/article/10.1007/s11146-013-9453-9">study</a> found “households that are more risk-averse and less literate are significantly less likely to choose an interest-only mortgage”. This partly due to lower initial repayments and wealthy households preferring the financial flexibility.</p>
<p>Interest-only borrowing has also been found to <a href="https://www.sciencedirect.com/journal/journal-of-housing-economics">fuel</a> <a href="https://doi.org/10.1016/j.regsciurbeco.2018.06.004">housing</a> <a href="https://www.sciencedirect.com/science/article/pii/S1094202520300776?via%3Dihub">speculation</a> and reduce housing affordability. </p>
<p>A US study found borrowers also tend to <a href="https://doi.org/10.1093/rof/rfy016">default</a> more.</p>
<p>A Danish <a href="https://doi.org/10.1162/rest_a_01146">study</a> found that once the interest-only lower repayment period is over and the loan reverts to principal and interest, those who didn’t make principal repayments suffered a large drop in disposable income.</p>
<h2>Financial flexibility comes with a catch</h2>
<p>With rates rising, interest-only loans may sound like an appealing way to have more cash available to cover other costs in life.</p>
<p>But just remember financial flexibility comes with a catch. An interest-only loan could be more expensive in the long run. </p>
<p>For some people, that cost will be worth it if it allows them to hold onto the house during a brief tough period or make more money investing elsewhere. But it’s a risk.</p>
<p>And when the interest-only loan ends, you’re still stuck with the task of paying off the money you borrowed from the bank in the first place (with interest).</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/should-i-pay-off-the-mortgage-asap-or-top-up-my-superannuation-4-questions-to-ask-yourself-170470">Should I pay off the mortgage ASAP or top up my superannuation? 4 questions to ask yourself</a>
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</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/188817/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adrian Lee does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While authorities such as the Reserve Bank often see them as risky, interest-only loans can be helpful in some circumstances.Adrian Lee, Associate Professor in Property and Real Estate, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1888912022-08-22T20:01:52Z2022-08-22T20:01:52ZWhat happens if I can’t pay my mortgage and what are my options?<figure><img src="https://images.theconversation.com/files/480027/original/file-20220819-25-12veju.jpg?ixlib=rb-1.1.0&rect=0%2C5%2C3988%2C2233&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Photo by Pat Whelen on Unsplash</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>With rising costs of living, including interest rate rises, many people are really worried about their mortgage. </p>
<p>So, what actually happens if you can’t pay your mortgage – and what are your options?</p>
<p>Here’s what you need to know.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-to-fix-australias-housing-affordability-crisis-negative-gearing-must-go-158518">Vital signs: to fix Australia's housing affordability crisis, negative gearing must go</a>
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<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/480028/original/file-20220819-26-vpnqeb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/480028/original/file-20220819-26-vpnqeb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/480028/original/file-20220819-26-vpnqeb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=451&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480028/original/file-20220819-26-vpnqeb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=451&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480028/original/file-20220819-26-vpnqeb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=451&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480028/original/file-20220819-26-vpnqeb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480028/original/file-20220819-26-vpnqeb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480028/original/file-20220819-26-vpnqeb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">It’s not particularly rare for a borrower to face a period of temporary financial hardship.</span>
<span class="attribution"><span class="source">Photo by Tierra Mallorca on Unsplash</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>Payment deferrals, payment plans or getting fees waived</h2>
<p>It’s not particularly rare for a borrower to face a period of temporary financial hardship, often due to circumstances beyond their control. </p>
<p><a href="https://www.rba.gov.au/publications/bulletin/2021/sep/the-financial-cost-of-job-loss-in-australia.html">Job loss</a>, relationship breakdowns, natural disasters, injuries and illnesses all affect the capacity of householders to repay their loan, especially given mortgages tend to run over many years, if not decades.</p>
<p>Banks have “hardship” processes to deal with borrowers who are temporarily unable to repay their loan.</p>
<p>The <a href="https://www.ausbanking.org.au/">Banking Code of Practice</a>, to which most banks subscribe, provides guidelines for lenders to help consumers through financial difficulties. </p>
<p>One form of relief is a payment deferral or “holiday”. That’s where a customer is able to postpone repayments until the issue causing hardship is resolved. Many people used this option during COVID lockdowns. </p>
<p>However, a payment holiday sometimes simply “kicks the can down the road” and the customer is still in financial trouble when their temporary payment holiday ends.</p>
<p>Other options include payment plans. This is where you pay back less per month but the mortgage lasts longer overall. </p>
<p>Or, the bank may simply offer advice on how to handle finances until you’re back on your feet. </p>
<p>It is also possible for banks to waive discretionary fees (such as those related to overdue payments).</p>
<h2>Banks don’t really want you to default</h2>
<p>Banks typically do not want their customers to default on property.</p>
<p>They’re usually protected against losses themselves through lender’s mortgage insurance, but banks see mortgage holders as particularly valuable customers. They have shown they can obtain finance and repay loans. </p>
<p>Usually, it’s easier for the bank to make hardship arrangements with a customer - and build trust along the way - than it is to wind up a mortgage, seize the property and then have to deal with trying to sell it in a flagging market.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/480029/original/file-20220819-15-jlfc4b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/480029/original/file-20220819-15-jlfc4b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/480029/original/file-20220819-15-jlfc4b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480029/original/file-20220819-15-jlfc4b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480029/original/file-20220819-15-jlfc4b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480029/original/file-20220819-15-jlfc4b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480029/original/file-20220819-15-jlfc4b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480029/original/file-20220819-15-jlfc4b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Mortgagee-in-possession can lead to lower sale price.</span>
<span class="attribution"><span class="source">Photo by RODNAE Productions/Pexels</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>What about my credit score?</h2>
<p>Recent <a href="https://www.creditsmart.org.au/financial-hardship/changes-to-credit-reporting-from-july-2022/">changes</a> to the credit legislation make it easier to apply for a payment plan without affecting your credit score. </p>
<p>From July 1, 2022, under the terms of a financial hardship arrangement, a customer’s credit report will show they have made on time repayments for the period of the arrangement – providing they have followed the terms of the hardship agreement.</p>
<p>Credit reports will also indicate whether (but not why) a customer is in a financial hardship arrangement.</p>
<p>This information stays on a credit report for one year, then disappears. </p>
<p>Importantly, though, hardship information will be visible to other credit providers, and may affect a customer’s ability to get other loans during the period.</p>
<h2>I’m struggling. So what should I do?</h2>
<p>Contact your financial institution as early as you can. Your bank may be able to offer payment relief in the form of reduced payments or a holiday from repayments – or a combination of both. </p>
<p>You usually need to provide evidence for the reason for financial hardship, and there’s an expectation you’ll be able to resume repayments when the temporary issue is resolved.</p>
<p>Not every application for hardship will be successful, particularly if you have made promises to repay in the past and not followed through.</p>
<p><a href="https://moneysmart.gov.au/how-life-insurance-works/income-protection-insurance">Income protection insurance</a> (for those who plan for uncertainties) may help prevent the need for hardship arrangements in the first place.</p>
<p>If you see the issue as ongoing, rather than temporary, consider a different approach.</p>
<p>If you’re ahead on your mortgage (as many Australians were during the pandemic), or you have significant equity in your house, consider refinancing. That’s where you take out a new mortgage to repay an existing loan.</p>
<p>You may be able to get a lower monthly repayment, especially if you have built an equity stake greater than 30%.</p>
<p>It won’t always be an option, especially if you are a recent borrower facing rising interest rates, stagnant or falling house prices, and have limited equity. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/480030/original/file-20220819-1146-svsca9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/480030/original/file-20220819-1146-svsca9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/480030/original/file-20220819-1146-svsca9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480030/original/file-20220819-1146-svsca9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480030/original/file-20220819-1146-svsca9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480030/original/file-20220819-1146-svsca9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480030/original/file-20220819-1146-svsca9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480030/original/file-20220819-1146-svsca9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A growing number of Australians are worried about their home loan.</span>
<span class="attribution"><span class="source">Photo by mentatdgt/Pexels</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>In dire circumstances, you may be able to <a href="https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/early-access-to-your-super/">access your superannuation early</a> (which means you may have a lot less to retire on).</p>
<p>If you really do need to sell, it is better to sell the property of your own volition, rather than having a forced sale.</p>
<p>Mortgagee-in-possession (which is where the bank sells the house) can often lead to a lower sales price than a vendor-led campaign, and the time frame may not suit you.</p>
<p>Free help is available. The <a href="https://www.arca.asn.au/">Australian Retail Credit Association</a> provides information on how hardship processes are reported, while the <a href="https://financialrights.org.au/factsheets/mortgage-stress/">Financial Rights Legal Centre</a> helps advocate for consumers through the mortgage stress process.</p>
<p>The government’s <a href="https://moneysmart.gov.au/managing-debt/financial-hardship">Moneysmart</a> site also provides information on how to navigate the hardship process.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-housing-game-has-changed-interest-rate-hikes-hurt-more-than-before-184553">The housing game has changed – interest rate hikes hurt more than before</a>
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</em>
</p>
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<img src="https://counter.theconversation.com/content/188891/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Grant is affiliated with the Australian Institute of Credit Management, and has conducted research in the past for Commonwealth Bank and the credit bureau Illion. This story is part of a series on financial and economic literacy funded by Ecstra Foundation.</span></em></p>Banks typically do not want their customers to default on property and have processes in place to help reduce the risk of this happening.Andrew Grant, Senior Lecturer in Finance, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1112672019-02-19T19:10:29Z2019-02-19T19:10:29ZWhy falling house prices do less to improve affordability than you might think<p>Housing prices are falling in Sydney and Melbourne, so housing must be becoming more affordable – right? </p>
<p>The annual growth of house prices has been <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0">slowing consistently for more than a year</a> in Australia’s largest cities. Prices finally started falling in the latter part of last year. The decline began much earlier in Perth and Darwin. Prices in most other cities, with the exception of Hobart, have been more stable.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/259652/original/file-20190219-121732-1kgsc08.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/259652/original/file-20190219-121732-1kgsc08.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/259652/original/file-20190219-121732-1kgsc08.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=430&fit=crop&dpr=1 600w, https://images.theconversation.com/files/259652/original/file-20190219-121732-1kgsc08.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=430&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/259652/original/file-20190219-121732-1kgsc08.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=430&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/259652/original/file-20190219-121732-1kgsc08.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=541&fit=crop&dpr=1 754w, https://images.theconversation.com/files/259652/original/file-20190219-121732-1kgsc08.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=541&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/259652/original/file-20190219-121732-1kgsc08.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=541&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Melbourne and Sydney have had sharp falls in house prices, but the declines started much earlier in Perth and Darwin.</span>
<span class="attribution"><a class="source" href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6416.0Sep%202018?OpenDocument">ABS</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>House owners have a secret weapon</h2>
<p>A rise in house prices is a mixed blessing. For those whose employment and savings strategies have helped them become home owners, price inflation is a good thing – the value of the house rises while the mortgage debt stays the same, or falls. For others, the savings and income targets for owning a home become ever more elusive. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/head-start-for-home-owners-makes-a-big-difference-for-housing-stress-109007">Head start for home owners makes a big difference for housing stress</a>
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</em>
</p>
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<p>So this should mean falling house prices are bad for home owners and good for aspiring home owners, right? In practice, things don’t work out quite like this, for several reasons.</p>
<p>Provided they are financially “liquid” (they have a job and can cope financially), home owners have a secret weapon: they don’t have to sell. </p>
<p><a href="https://www.ahuri.edu.au/research/final-reports/287">Research</a> shows housing markets tend to operate in periods of “frenzy” alternating with periods of relative inactivity. Lots of people try to capitalise and trade up in a hot market. Once markets cool, people tend to stay where they are and wait for prices to improve. </p>
<p>For aspiring home owners, this is bad news. Although prices might be falling, fewer people are vacating their houses. This reduces the supply of houses on the market at lower prices.</p>
<h2>Weaker markets make loans harder to get</h2>
<p>House markets adjust to economic cycles, although these adjustments tend to be exaggerated and are prone to overshooting. The global financial crisis is an obvious example of an extreme correction when asset values plummeted.</p>
<p>The current dip in house prices in Australia is almost certainly a milder adjustment. However, even minor adjustments in the housing market are associated with adjustments elsewhere in the economy, particularly in labour markets. </p>
<p>The graph below shows the national trends in employment and <a href="http://www.abs.gov.au/ausstats/abs@.nsf/products/036166B5C6D48AF2CA256BD00027A857?OpenDocument">underemployment</a> over the past three years. Although <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0">total employment has been growing</a>, the reported level of underemployment (a measure of the desire of workers to work more hours than they do) was also growing for much of 2018. Low wages growth and limited working hours do not help when people are already struggling to afford a house.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/259654/original/file-20190219-121744-1ovadfr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/259654/original/file-20190219-121744-1ovadfr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/259654/original/file-20190219-121744-1ovadfr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=452&fit=crop&dpr=1 600w, https://images.theconversation.com/files/259654/original/file-20190219-121744-1ovadfr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=452&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/259654/original/file-20190219-121744-1ovadfr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=452&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/259654/original/file-20190219-121744-1ovadfr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=569&fit=crop&dpr=1 754w, https://images.theconversation.com/files/259654/original/file-20190219-121744-1ovadfr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=569&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/259654/original/file-20190219-121744-1ovadfr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=569&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">National trends in employment and underemployment.</span>
<span class="attribution"><a class="source" href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6202.0Dec%202018?OpenDocument">ABS</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The supply of finance in mortgage markets also depends on the economic cycle. Unfortunately, falling house prices and a deteriorating economic outlook tend to translate to tighter lending conditions. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/no-surplus-no-share-market-growth-no-lift-in-wage-growth-economic-survey-points-to-bleaker-times-post-election-110315">No surplus, no share market growth, no lift in wage growth. Economic survey points to bleaker times post-election</a>
</strong>
</em>
</p>
<hr>
<p>So while housing prices might be falling in our biggest cities, at the same time it’s becoming harder to get a home loan. The <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/5609.0">number of first home buyer dwellings financed fell</a> by more than 5% in the year to November 2018.</p>
<h2>So what’s next for the housing market?</h2>
<p>Change in the total number of properties sold is also a useful leading indicator, meaning that transactions data tend to signal a change in market conditions long before average prices begin to change. The chart below shows the year-on-year growth in transactions peaked in the third quarter of 2017. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/259653/original/file-20190219-121744-1l003vu.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/259653/original/file-20190219-121744-1l003vu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/259653/original/file-20190219-121744-1l003vu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/259653/original/file-20190219-121744-1l003vu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/259653/original/file-20190219-121744-1l003vu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/259653/original/file-20190219-121744-1l003vu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=505&fit=crop&dpr=1 754w, https://images.theconversation.com/files/259653/original/file-20190219-121744-1l003vu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=505&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/259653/original/file-20190219-121744-1l003vu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=505&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Changes in the number of properties sold in Australia.</span>
<span class="attribution"><span class="source">ABS</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The growth in transactions began slowing, then became negative in the early months of 2018. These changes occurred much earlier than the plateau, then fall, in prices in late 2018. </p>
<p>The outlook is never certain, but it is worth noting that prices very rarely stabilise or begin growing while the transaction volume is still declining.</p>
<p>Like many sectors of the economy, housing markets are cyclical. But what makes the housing market different is the historical fact that periods of falling prices are much less frequent than periods of rising prices. The market will soon return to its long-run unsustainable trajectory of rising prices and declining affordability. </p>
<p>During the current price adjustment, housing affordability may appear to improve slightly. But low wages growth and limited working hours, coupled with lending restrictions, combine to make it just as hard for first home owners to enter the market. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/local-councils-put-affordable-housing-supply-in-the-too-hard-basket-97461">Local councils put affordable housing supply in the too hard basket</a>
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</p>
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<p>Current circumstances create opportunity elsewhere in the housing system. In particular, modestly falling prices coupled with lenders issuing fewer mortgages to owner-occupiers create fertile conditions for private residential investors. Times like this tend to favour cash buyers rather than those who need to scrape together a deposit and secure a mortgage before they can buy a house. </p>
<p>Paradoxically, then, declining house prices are no better for housing affordability than rising prices.</p><img src="https://counter.theconversation.com/content/111267/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chris Leishman receives funding from the Australian Housing and Urban Research Institute (AHURI), South Australian Housing Authority, South Australian Government, the United Kingdom's Economic and Social Research Council's Collaborative Centre for Housing Evidence (CaCHE), and United Kingdom government and devolved government departments. </span></em></p>It’s natural to assume that a downturn in the property market is good news for people who’ve been priced out of the market. In practice, they might still not be able to buy a home.Chris Leishman, Professor of Housing Economics, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/995042018-07-09T22:32:30Z2018-07-09T22:32:30ZCanada’s housing crisis reinforces violence against poor women<figure><img src="https://images.theconversation.com/files/226407/original/file-20180705-122262-14uzt5x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A single-room occupancy (SRO) hotel in Chinatown in Vancouver, B.C.</span> <span class="attribution"><span class="source">(THE CANADIAN PRESS/Darryl Dyck)</span></span></figcaption></figure><p>Canadian cities are in the throes of an unprecedented <a href="https://www.huffingtonpost.ca/2018/07/03/housing-affordability-canada-rbc_a_23473768/?utm_hp_ref=ca-housing-canada">housing crisis</a>. Lax housing policies and lending practices, along with a previously non-existent <a href="https://www.placetocallhome.ca/pdfs/Canada-National-Housing-Strategy.pdf">national housing strategy</a> have converged, contributing to <a href="http://www.rbc.com/newsroom/_assets-custom/pdf/20180703-ha.pdf">record-level housing and rental prices</a>. </p>
<p>Cities such as Toronto and Vancouver are most affected, with smaller cities like Montréal and Victoria also dealing with the impact of <a href="http://www.rbc.com/newsroom/_assets-custom/pdf/20180703-ha.pdf">rising mortgage interest rates</a>.</p>
<p>Efforts aimed at controlling the crisis, including <a href="https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/additional-property-transfer-tax">foreign</a> <a href="https://www.fin.gov.on.ca/en/bulletins/nrst/">buyer</a> taxation measures and <a href="http://bcbudget.gov.bc.ca/2018/homesbc/2018_Homes_For_BC.pdf">provincial</a> <a href="http://www.seniors-housing.alberta.ca/documents/Provincial%20Affordable%20Housing%20Strategy.pdf">housing</a> <a href="https://news.ontario.ca/mof/en/2017/04/ontarios-fair-housing-plan.html">strategies</a>, have yet to address the limited availability of housing. This twin (un)affordability and availability crisis is affecting all demographics across Canada. </p>
<p>However, those most marginalized by poverty — <a href="http://ywcacanada.ca/data/research_docs/00000076.pdf">especially low-income women</a> — are impacted most acutely, largely due to housing instability, residential evictions and other barriers such as stigma.</p>
<p>This means women are more likely to experience “invisible homelessness,” such as staying temporarily with family or a friend. This likelihood can be exacerbated by <a href="https://doi.org/10.1080/03630242.2015.1086465">gender-based violence</a>.</p>
<h2>Housing instability in Vancouver</h2>
<p>Vancouver has continued to be ranked among the <a href="https://www.mercer.com/newsroom/2018-quality-of-living-survey.html">most “livable” cities</a> in the world — livable being a relative term. </p>
<p>Despite what the algorithms show, Vancouver now boasts the most expensive housing market in Canada, with <a href="https://www.landlordbc.ca/app/uploads/2017/11/Vancouver.pdf">rents having significantly increased</a> for the third consecutive year and <a href="http://www.rbc.com/economics/economic-reports/pdf/canadian-housing/healthcheck-april17.pdf">vacancy rates among the lowest in the country</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/226409/original/file-20180705-122253-5qoh06.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/226409/original/file-20180705-122253-5qoh06.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=323&fit=crop&dpr=1 600w, https://images.theconversation.com/files/226409/original/file-20180705-122253-5qoh06.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=323&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/226409/original/file-20180705-122253-5qoh06.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=323&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/226409/original/file-20180705-122253-5qoh06.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=405&fit=crop&dpr=1 754w, https://images.theconversation.com/files/226409/original/file-20180705-122253-5qoh06.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=405&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/226409/original/file-20180705-122253-5qoh06.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=405&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A real estate sign is pictured in Vancouver on June 12, 2018.</span>
<span class="attribution"><span class="source">(THE CANADIAN PRESS Jonathan Hayward)</span></span>
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</figure>
<p>The rapid urban development of particular neighbourhoods in Metro Vancouver has led to an influx of high-end luxury apartments and diminishing low-income rental housing stock.</p>
<p>Despite <a href="http://www.carnegieaction.org/wp-content/uploads/2018/03/CCAP-2017-Hotel-Report-1.pdf">persistent efforts by community groups to retain low-income housing</a>, <a href="https://www.theglobeandmail.com/news/british-columbia/bc-renters-form-new-union-to-protect-from-evictions/article34861030/">residential evictions are commonplace</a> among people living in Vancouver’s Downtown Eastside neighbourhood — an approximate 10-block area that contains <a href="http://council.vancouver.ca/20170411/documents/rr1presentation.pdf">94 per cent of the city’s single-room accommodation (SRA) housing</a>. This is also one of the <a href="https://www2.gov.bc.ca/assets/gov/public-safety-and-emergency-services/death-investigation/statistical/illicit-drug.pdf">neighbourhoods most affected</a> by North America’s overdose crisis.</p>
<p>Housing instability has been shown time and again to increase health- and drug-related harms, including risk of <a href="https://link.springer.com/article/10.1007%2Fs10461-005-9000-7">blood-borne infections</a>, <a href="https://doi.org/10.1016/j.drugpo.2013.10.011">mental health issues</a> and <a href="https://doi.org/10.1016/j.drugpo.2005.09.002">increased substance use</a>. </p>
<p>Single-room accommodation environments also increase risk of harm, yet they continue to be used as “affordable” housing for those with housing instability, despite the <a href="https://www.sciencedirect.com/science/article/pii/S0277953611005831?via%3Dihub">known health risks</a> associated <a href="https://doi.org/10.1016/j.drugpo.2005.10.003">with these</a> <a href="https://www.ijdp.org/article/S0955-3959(05)00199-4/fulltext">environments</a>. </p>
<p>They are also often the only <a href="https://www.dukeupress.edu/addictedpregnantpoor">available</a> <a href="https://doi.org/10.1080/09663690701562198">and affordable housing</a> option for poor women in urban centres like Vancouver.</p>
<h2>Vulnerability to eviction</h2>
<p><a href="https://doi.org/10.1016/j.healthplace.2018.04.001">Research conducted by the British Columbia Centre on Substance Use</a> investigated the vulnerability to evictions for women who reside in SRA housing. </p>
<p>In Vancouver, SRA rooms vary between 100 to 320 square feet. They include both dilapidated and infested buildings and some with newly renovated interiors. There are also both <a href="http://vancouver.ca/files/cov/sro-revitalization-action-plan.pdf">non-profit-operated and privately operated buildings</a>, with ownership often dictating the physical state of the buildings and the amount of rent charged. <a href="http://www.carnegieaction.org/wp-content/uploads/2018/03/CCAP-2017-Hotel-Report-1.pdf">The average monthly rent in privately operated buildings is $687</a> — far exceeding the $375 social assistance shelter allowance. </p>
<p>While SRA housing was <a href="http://www.arsenalpulp.com/bookinfo.php?index=169">historically built for men working in seasonal industries</a>, it is now the primary source of housing available to low-income individuals.</p>
<p>Between June 2015 and May 2016, our team collected data from 56 recently evicted people who use drugs, 19 of whom were women. All participants had been evicted from non-profit operated and privately operated SRAs in the Downtown Eastside neighbourhood. </p>
<p>This work showed how the physical, social and structural environments of SRAs contributed to women’s evictions, reinforced gender-based violence and often prevented their ability to contest unfair evictions.</p>
<h2>Physical and sexual violence</h2>
<p>The continued use of men-centered SRA housing models — with shared washrooms (that may or may not work) and shared kitchens (if available) — reinforced inequities for women in the study. </p>
<p>Intense surveillance and monitoring, building curfews, the fact that staff have room keys and that police readily access the buildings all prohibited women from moving freely within the building. For some this meant sleeping and working outside. </p>
<p>The varying building models also reinforced and normalized violence against women. Lapses of security (broken locks, no desk staff at night), exploitation by building staff (no access to mail without sexual favour) and infantilizing rules (daily room checks, no overnight guests) were some of the ways in which violence against women was made pervasive within SRA housing. </p>
<p>In private buildings, this often resulted in physical or sexual violence. And daily practices — such as threats of violence from staff and lack of tenancy agreements — made women more vulnerable to eviction and restricted their ability to contest illegal evictions. </p>
<p>All but two of our participants were evicted into homelessness, with victims of domestic violence disproportionately affected.</p>
<h2>Vancouver must wake up</h2>
<p>Despite the increased coverage of sexual assault and violence against women in this #MeToo era, the experiences of poor women, racialized women and women who use drugs are still widely overlooked. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/226408/original/file-20180705-122262-1t0uxcg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/226408/original/file-20180705-122262-1t0uxcg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/226408/original/file-20180705-122262-1t0uxcg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/226408/original/file-20180705-122262-1t0uxcg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/226408/original/file-20180705-122262-1t0uxcg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=510&fit=crop&dpr=1 754w, https://images.theconversation.com/files/226408/original/file-20180705-122262-1t0uxcg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=510&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/226408/original/file-20180705-122262-1t0uxcg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=510&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A woman holds a sign as hundreds of people march through the Downtown Eastside during the 25th annual Women’s Memorial March in Vancouver, B.C. The march is held to honour missing and murdered women and girls.</span>
<span class="attribution"><span class="source">(THE CANADIAN PRESS/Darryl Dyck)</span></span>
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<p>Violence against poor women in Vancouver remains normalized and pervasive. It isn’t something that can be escaped as it extends into low-income housing and is reinforced through low-income male-centered housing models, building policies and surveillance tactics (or lack thereof).</p>
<p>Recognizing the ways that gender structures and defines SRA housing is imperative to developing a more suitable housing strategy in Vancouver. The city boasts of its status as one of the most highly sought-after places to live, yet it continues to ignore the needs of those who are most marginalized by redevelopment strategies. </p>
<p>It is time for Vancouver — and elsewhere — to wake up to the social and structural injustices faced daily by poor women and to create livable, safe, affordable housing attuned to the varying needs of residents.</p><img src="https://counter.theconversation.com/content/99504/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alexandra Collins is supported by a Vanier Canada Graduate Scholarship. </span></em></p>Low-income women suffer evictions and violence in Canada’s most “livable” cities.Alexandra Collins, Research Associate, British Columbia Centre on Substance Use and PhD Candidate, Faculty of Health Sciences, Simon Fraser UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/986242018-06-21T18:48:38Z2018-06-21T18:48:38ZVital Signs: we are witnessing a slowly deflating property bubble, for now<figure><img src="https://images.theconversation.com/files/224161/original/file-20180621-137714-1uhm4wl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The air may fizzle out of the Australian balloon, or it may burst violently.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>Vital Signs is a regular economic wrap from UNSW economics professor and Harvard PhD Richard Holden (@profholden). Vital Signs aims to contextualise weekly economic events and cut through the noise of the data affecting global economies.</em></p>
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<p>In a week that was fairly light on data releases, let’s return to Australia’s perennial favourite topic – house prices. Painful though it may be for existing property owners who are selling, we are witnessing what a bubble slowly deflating back to reality looks like.</p>
<p><a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0">Data released Tuesday</a> showed that across Australia’s eight capital cities prices fell 0.7% in the first quarter of 2017. Sydney was hardest hit, with prices down 1.2%. Melbourne and Brisbane experienced 0.6% declines and Perth prices were down 0.9%.</p>
<p>Price declines were more subdued over the previous 12 months, or were even still up over the period. Sydney prices were down 0.5% on the year, but Melbourne prices were still up strongly (6.2%) and Brisbane showed 1.6% annual growth. Perth, where prices have been under pressure for some time, registered a 1.5% fall over the last year.</p>
<p>This downward price pressure is consistent with a reduction in <a href="https://www.corelogic.com.au/auction-results">auction clearance rates documented by CoreLogic</a>. Last week, clearance rates averaged 56.9% across the country and just 55.8% in Sydney and 58.7% in Melbourne. Compare this to a year ago when the capital city average was 66.7%, Sydney was at 68.0% and Melbourne at 71.0%. And this doesn’t even factor in that auction volumes have dropped this year.</p>
<p>So here’s the deal. Fewer people are trying to sell their residential properties. Those that try are having less success in doing so. Those that do succeed are getting lower prices.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-the-spooky-mortgage-risk-signs-our-bankers-are-ignoring-85591">Vital Signs: the spooky mortgage risk signs our bankers are ignoring</a>
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<p>Yet it pays to take a longer-term view. As <a href="https://www.rba.gov.au/monetary-policy/rba-board-minutes/2018/2018-06-05.html">the minutes of the last RBA board meeting noted</a>:</p>
<blockquote>
<p>… housing prices were still 40% higher in Sydney and Melbourne than at the beginning of 2014, while housing prices in Perth had fallen by around 10% over the same period.</p>
</blockquote>
<p>The big question is whether the housing market will continue to deflate slowly, or whether there is going to be an abrupt “pop”.</p>
<p>A big correction to property prices would require a major trigger. The most likely candidate for that trigger is interest-only loans. </p>
<p><a href="http://www.abc.net.au/7.30/concerns-as-interest-only-loans-roll-over-to/9887938">More and more attention is finally being paid</a> to dangers caused by Australia’s profligate use of such loans. <a href="https://theconversation.com/vital-signs-the-spooky-mortgage-risk-signs-our-bankers-are-ignoring-85591">As I wrote last year</a>, at the peak a staggering 40% of residential mortgages in Australia were interest only.</p>
<p>The Australian Prudential Regulation Authority (APRA) <a href="https://theconversation.com/vital-signs-interest-only-loans-are-an-economic-debacle-that-could-bust-the-property-market-95518">stepped in</a> last year, capping new interest-only loans at 30% of new loans. That, along with a tightening of underwriting standards by banks, has led to a sharp drop in such loans. </p>
<p>The latest figures put the proportion of interest-only loans at <a href="https://www.businessinsider.com.au/australia-interest-only-mortgage-restrictions-apra-rba-2018-3">15.2% of new issuances</a>.</p>
<p>The RBA has been <a href="https://www.rba.gov.au/speeches/2018/sp-ag-2018-04-24.html">pushing an upbeat story</a> about how this shakes out. As they tell it, the A$120 billion a year of interest-only loans coming due will be smoothly transitioned to principal-and-interest loans for most people.</p>
<p>Well, perhaps. I certainly hope so. </p>
<p>But for many people this transition will involve increases in monthly repayments of 30-40%. At a time when wages growth has been persistently sluggish, many people don’t have much wiggle room.</p>
<p>Interest-only loans typically have a five-year term and then need to be refinanced or become principal-and-interest loans. For a whole lot of folks, an interest-only rollover ain’t going to happen. Worse, the largest volumes of interest-only loans were written in 2013-2016. </p>
<p>So we are about to see a three-year wave of shifts to principal-and-interest loans. </p>
<p>Worse still, the loans originated in those years were heavily mediated by mortgage brokers whose incentives were all about moving volume, not quality. <a href="http://www.abc.net.au/news/2017-09-11/500b-dollars-of-liar-loans-in-australia-ubs/8892030">Widely cited research</a> from investment bank UBS about the prevalence of so-called “liar loans” gives one every reason to be really worried about the ability of these borrowers to make a mortgage payment that has increased by a third or more per month.</p>
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Read more:
<a href="https://theconversation.com/vital-signs-poor-wage-growth-means-interest-rates-could-be-low-for-a-long-time-98240">Vital Signs: poor wage growth means interest rates could be low for a long time</a>
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<p>And the rosy scenario the RBA keeps pushing involves look at the <em>average</em> buffer and embedded equity that households have. But that misses the economics 101 point that it is the marginal borrower that determines equilibrium prices, not the average. </p>
<p>If I’m selling hot dogs I don’t care what the average person is willing to pay for a hot dog, I care what the last person I might sell to is willing to pay, for she determines the price.</p>
<p>And, in a moment of gaping honesty eight weeks ago, the RBA’s Chris Kent <a href="https://www.rba.gov.au/speeches/2018/sp-ag-2018-04-24.html">highlighted the difference between the average and marginal borrower</a>, saying:</p>
<blockquote>
<p>… about half of owner-occupier loans have prepayment balances of more than six months of scheduled payments. While that leaves half with only modest balances, some of those borrowers have relatively new loans.</p>
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<p>It doesn’t matter than some of them are new borrowers – other than that they bought at the height of the bubble, making them more susceptible to financial stress than other borrowers. The fact is that a whole bunch of folks are on the wire. If their payments go up they are going to struggle to make them. And if a lot need to sell at once then, as they say at NASA, “Houston, we have a problem.”</p>
<p>The air may fizzle out of the Australian balloon, or it may burst violently. Either way we should be asking hard questions about why APRA waited so late to act on interest-only loans, liar loans and underwriting standards in general. Very hard, very public questions.</p><img src="https://counter.theconversation.com/content/98624/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A whole bunch of folks are on the wire, and if their housing payments go up they are going to struggle.Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.