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This week on Insight – “Is the Australian dream of buying your own home getting too tough for first time buyers?”

The price of houses is shooting up twice as fast as incomes and many young people are taking out big loans – which chew up a substantial proportion of their incomes.

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The effect of the housing boom is also making it more difficult for renters with a dwindling supply of homes and rent increases predicted.

So how do you afford a home? What lengths are young people being forced into in order to own their own house? And will prices ever go down?

We’ll be joined by first home buyers, their parents and the country’s leading economists to find out what the future holds for Australia’s housing market.


Transcript

On Insight, a subject dear to many of our hearts – property. Even if you're on a reasonable income you'll know it's harder than ever to buy your own home in Australia. A boom in property prices across the country has meant the average Aussie home is now only about half as affordable as it was in the '70s. With first home buyers either struggling with record levels of debt or priced out of the market altogether, it's a hot political issue, especially with talk of another interest rate rise in the next couple of months. So what, if anything, can be done to make housing more affordable?

JENNY BROCKIE: Shaun Hoyt looks at one couple's solution in the hottest property market in the country.

FELICITY AND GEOFF’S STORY:

REPORTER: Shaun Hoyt

Felicity and Geoff and daughter Estella live in Perth. They're both 36. He's a theatre manager and she does a bit of part-time administration work. They've saved up about $26,000 and, hoping it might be enough for a deposit, had a look at houses to buy. They quickly realised they'd been priced out of an escalating market.

FELICITY GLENCROSS: I guess the realisation that we are never going to buy our own home – it was depressing, really depressing.

GEOFF GLENCROSS: We've always had that dream of owning a home or the assumption that one day we will be able to do that and have some security.

The resources boom driving Perth's economy has brought a property boom too. Prices have tripled since the beginning of the decade. That's been great for the construction industry, but bad news for first home buyers.

FELICITY GLENCROSS: All the balls can stay there, OK.

Felicity and Geoff were told the lease on their rental property wouldn't be renewed and rents were going up. They again checked out their options.

GEOFF GLENCROSS: Do you want some toast?

But even a 40-year loan wouldn't get them an affordable home.

FELICITY GLENCROSS: You know where the sauce is.

Then they heard about a new shared equity scheme set up by the WA Government. Such schemes usually help the disadvantaged but this was to assist low and moderate income earners into a first home. They discovered they were eligible and found a house that cost $350,000. They're the first to take up the Government's offer.

ALAN CARPENTER, WA PREMIER: Sorry about the crowd.

And on settlement day, Premier Alan Carpenter paid a visit with the media. For a politician, a perfect opportunity to promote the scheme.

ALAN CARPENTER: Over the last 12 months the average price of a property in the metropolitan area has increased by around about 40% and that makes it difficult for people to get into the market. We've targeted our assistance to first home buyers at the lower end of the market and for people on low to medium incomes, and I think that's a sensible strategy.

The way it works for families like them with an income under $60,000 is that the Government buys 40% of the property and loans them the money to buy the other 60%. That makes their loan about $206,000. The hitch, of course, is that, if they sell, the Government gets its 40% slice. The couple hope one day they might be able to buy the Government out but, for now, any spare cash will go on renovations.

GEOFF GLENCROSS: Excellent, look at that.

FELICITY GLENCROSS: Concrete floor.

GEOFF GLENCROSS: Let's pull it up. Oh, wow.

It's no palace and they only own part of it but it's the only way they could have done it.

FELICITY GLENCROSS: I mean, as far as we're concerned, we've been given a loan which is 60% of the value of the property and we are moving into our own home. So it kind of means nothing. That's on the paperwork, yes, the Government have financed it and of course it means everything because it's helped us get in there but, realistically, it is our home.

JENNY BROCKIE: Well, welcome, everybody. Good to have you here and welcome to Felicity and to Geoff. Thanks for joining us. How does it feel having the Government own 40% of your house?

FELICITY GLENCROSS: It's funny, people keep asking us that question but I don't think it feels any different to owning 100% of the house because we're in there, it's our home.

JENNY BROCKIE: Well, I guess otherwise it's the bank owning it anyway so it's What would you have done if this scheme hadn't been available? Where would you be now, do you think?

GEOFF GLENCROSS: We would have continued renting.

FELICITY GLENCROSS: We'd actually accepted a rental for $320, no, $300, I think it was. We'd accepted a rental and within half an hour got a call about this scheme so if the scheme hadn't come through we'd be renting, but in a new place. We would have moved already.

JENNY BROCKIE: And you didn't mind being trotted out for the press conference?

FELICITY GLENCROSS: Ah, well, the Premier brought chocolate cake.

JENNY BROCKIE: So your daughter was happy, presumably. OK. Kirstin, you're from Brisbane and I'd like to do a bit of a whip around the country now. You're from Brisbane. How difficult is it for you and for your husband to try to buy there?

KIRSTIN SAVOPOULOS: Um, I think probably the same sort of experience that a lot of people would have. It's quite daunting because you know you need to save a heck of a lot of money in order to get ahead and thank goodness Mum's here because she's actually gone guarantor for us so we don't have to pay mortgage insurance.

JENNY BROCKIE: OK, you're trying to buy this house. I think we've got a picture of it here. So you're doing that with your mum going guarantor. How much is she going guarantor for?

KIRSTIN SAVOPOULOS: Um, she's going 20%, which is about $76,500. She's limited to that amount only.

JENNY BROCKIE: Right, so how much are you borrowing?

KIRSTIN SAVOPOULOS: We're borrowing 100%

JENNY BROCKIE: Of the purchase price?

KIRSTIN SAVOPOULOS: of the purchase price, yeah.

JENNY BROCKIE: Lynette, you're Kirstin's mum and, as she said, you're going guarantor for her. How do you feel about that?

LYNETTE DAY: I don't mind at all. Very happy to help.

JENNY BROCKIE: What about you, Dell? I'd like to hear your story. You and your partner Ryan, I think, bought last year. We've got a picture of your new house on the NSW Central Coast, um, which cost $282,000. Is that right?

DELL PATTERSON: Yeah, that's what we bought it for, yep.

JENNY BROCKIE: How did you do it?

DELL PATTERSON: We had no chance at all saving for a deposit. We were renting and the most we had in that account would have been $100 at the most and we ended up using that for, like, insurances for cars and things like that. So we just put it to Mum if they could, like, get another mortgage loan to put as our deposit which Mum and Dad happily did and could afford to do so we could finally get into our home but without Mum's help.

JENNY BROCKIE: Along came Mum again.

DELL PATTERSON: Yeah. Thank God!

JENNY BROCKIE: How did Mum feel about that? You took out a second mortgage on your house?

KAREN PATTERSON: We did, Jenny. We still have a mortgage on our home, my husband and I, but we had enough equity in that mortgage that we could take out a second mortgage on the mortgage interest rates as opposed to what the young ones are paying on car loans and that type of thing.

JENNY BROCKIE: So you've actually lent them money?

KAREN PATTERSON: We have taken a loan in our name so it's our risk but they're actually paying the loan.

JENNY BROCKIE: And how much is that?

KAREN PATTERSON: $52,000.

JENNY BROCKIE: Would you do it for all your children?

KAREN PATTERSON: Not at all, Jenny. No, you have to be very sensible. You have to know your children. I know Lyndell and Ryan are very sensible young people. They investigated everything, they researched, they talked to people, they didn't go to the first borrower, so I'm very happy that they And you have to be sensible to know that, God forbid, if anything happened with Dell and Ryan my husband and I are in a position that we could pay that loan.

JENNY BROCKIE: Well, that is the other issue, isn't it, because all sorts of things can happen.

KAREN PATTERSON: Exactly. That's reality and it's in our name, and that would be the accountability.

JENNY BROCKIE: I'm interested – you said so firmly, though, you wouldn't do it for all your children.

KAREN PATTERSON: You would not. You have to be sensible.

JENNY BROCKIE: If the children are watching?

KAREN PATTERSON: It's not a surprise, Jenny.

JENNY BROCKIE: They know already. They know who they are. Um, I'd like to actually ask Dell something else here. Dell, you do casual work. Is that right?

DELL PATTERSON: Yes.

JENNY BROCKIE: And Ryan works full-time. How much of your combined income goes on the mortgage?

DELL PATTERSON: Probably, including Mum and Dad's loan, they helped us out probably 80%-85% of our income each fortnight would go towards the house.

JENNY BROCKIE: 80%-85%?

DELL PATTERSON: Could be more, yeah. It depends on my week. Like, if I get a good week we might be able to go out to dinner or something. But usually between 80% and 90% I'd probably say, so a lot.

JENNY BROCKIE: That's a massive figure. Do you not worry about that?

DELL PATTERSON: I do worry but we just learn to get by. There's some weeks I can say “OK, you have $100, we can do this and this,” but other weeks I'll say, “OK, we've got car insurance, rego. We can't do a thing. Wait till next fortnight.” It's just a reality. We just get by. You have to learn to live with it.

JENNY BROCKIE: What about Kirstin? What about you? How much of your income is going on the mortgage?

KIRSTIN SAVOPOULOS: We worked it out – it's just over 50%.

JENNY BROCKIE: And are you concerned about that? This is higher than the average, the national average, actually. All these figures are higher than the averages I've seen.

KIRSTIN SAVOPOULOS: When were sitting down to be as realistic as possible about how much we can afford and want to afford, I worked out basically the annual expenses as well, like, including your rates, your water – like, all the big-ticket expenses sort of thing. At the end of the month we basically have $1,000 left – play money or to save or whatever. So we've made sure we were comfortable, it was a comfortable stretch for what we were going for but not going to push us over the edge.

JENNY BROCKIE: Do you worry about something going wrong in that whole scenario? Somebody losing a job or…?

KIRSTIN SAVOPOULOS: You know, I don't actually think about it. I know it's a reality but it's one of those things I think we'll learn to cope with as we do. I think we've got a really big family structure so my.. Mum and brothers.

JENNY BROCKIE: There's Mum again in this picture.

KRISTIN SAVOPOULOS: And my brothers and sister – they all earn good money.

JENNY BROCKIE: All well and good if you've got a big family structure and a nice generous mum, isn't it? Ross Gittins, houses have seemed unaffordable before in Australia. Is what we're seeing now any different to what it's been like before?

ROSS GITTINS, ECONOMIST, SMH AND THE AGE: I think it is. I think you're right. We've had periods where we've been worried about housing affordability lots of times before. Basically we have a housing boom about once every decade and after that boom's over the spotlight turns to worrying about how first home buyers can afford to buy a house at these prices but I think this time is much worse than what we've seen in the past.

JENNY BROCKIE: Now, how has that happened? What's caused that?

ROSS GITTINS: It's because of It's basically the biggest single reason, not the only reason, but the biggest single reason is the return to low inflation and the halving of mortgage interest rates which increase people's ability to borrow and then when everybody went out and tried to buy a better house at the same time because they were able to borrow more, but there was no particular increase in the supply of houses, that just pushed up the price of houses. We managed by doing that, by everybody at the same time saying, “I'd like to move to a bigger, better house,” we managed to double the price of houses.

JENNY BROCKIE: So by keeping interest rates low, we've actually fuelled the boom?

ROSS GITTINS: That's right.

JENNY BROCKIE: Robert, you've been tracking the housing market in Australia for a quarter of a century now. Once upon a time it was Sydney that was the hot spot. Give us a picture now of the nation, a quick snapshot of Australia in terms of prices.

ROBERT MELLOR, DIRECTOR, BIS SHRAPNEL: Look, Sydney's still the most expensive place in the country. We track what we call median prices – that's where 50% of the sales in the market are above that figure and 50% are below and in Sydney that's around about $520,000. The thing is Perth's now caught up just about. I mean, Perth prices within about 10%, median prices of about $470,000.

JENNY BROCKIE: And this is the resources boom fuelling it?

ROBERT MELLOR: With the resources boom prices, as we saw in that earlier intro, prices are about triple what they were back in 2000.

JENNY BROCKIE: And Queensland, Adelaide, Melbourne?

ROBERT MELLOR: Queensland, the boom was big. I mean, prices went up about 90% but ran out of steam basically in early 2004 because first home buyers in particular and even upgraders just said, “Look, we can't afford it,” after prices had risen 90-odd percent. So it went right around the countryside. Down in Melbourne they're only around about $370,000, $380,000. So there's a huge difference still between Sydney and the rest of the country and that's why, during the current downturn of the Sydney market, we're in for a fairly long phase of fairly flat prices or maybe even further declines if interest rates were to rise further.

JENNY BROCKIE: Well, that was my next question because that's what everyone is going to be hanging on to ask you – what can they expect those prices to do? Are they going to keep going up? Are they going to flatten out?

ROBERT MELLOR: We've literally done some recasting of our numbers in the office today putting out our view over the next three to five years and our view in markets like Sydney, we're in for another couple of years of pretty flat prices and maybe even price declines. Now, that's great news for first home buyers. But I think people buying into the market in Sydney need to realise that, you know, any significant upturn is a long time away.

JENNY BROCKIE: And is that pretty similar across the country?

ROBERT MELLOR: No, I think markets like Brisbane are about to turn up again. I think the demand's really started to pick up in recent times.

JENNY BROCKIE: The Brisbane people over here who've just bought are looking very relieved, yes.

ROBERT MELLOR: Well, the thing is the market was fairly steady over the last couple of years but there's pretty clear signs there's a lot more, you know, owner occupiers in the market. Investors are looking there and the dangerous sign obviously is if more investors look into the market they could fuel stronger price growth. But I wouldn't be surprised in Brisbane if prices were up 30%-35% in the next five years and that would be the fastest growth that we'll see anywhere around the country.

JENNY BROCKIE: John Symond, you run Aussie Home Loans. How would you have coped trying to buy your first house in this environment?

JOHN SYMOND, MANAGING DIRECTOR, AUSSIE HOME LOANS: Very difficult. This environment is nearly impossible and listening tonight with family assistance, that's becoming more and more the norm and not all families are capable, have got the got the assets to do that. But it's really becoming nearly impossible for first home buyers to get into the market.

JENNY BROCKIE: And what do you think about the levels of debt people are carrying given that you're providing the finance for them?

JOHN SYMOND: It's scary. I think the problem has been not just low interest rates. Money's become a commodity. I agree with your comments earlier, it's, it's really too free to borrow and the red-hot competition of lenders to generate business, um, to borrow $500,000 today for a first home buyer, you think back 20 or 30 years and that was just impossible and to be able to borrow nearly the lot. So I think..

JENNY BROCKIE: But you're arguing against your own business here. I mean, you're doing the lending.

JOHN SYMOND: Yeah. All we can do is try to ensure we help the borrower understand and make sure they do have a plan B because if you do lose a job – first home buyers are more prone to change, they're the most inexperienced in handling big debt and anything can happen. So if you did a survey and look at those buyers who have bought in the last three years and borrowed 95%, 100%, in most postcodes if they had to sell today, their mortgage debt would be higher than the property's worth. So I am concerned.

JENNY BROCKIE: OK, we'll get back and we'll talk more about lending but Jane Miller, you've just bought your first home. I think we've got a photo of it here.

JANE MILLER: It doesn't look as good as the others.

JENNY BROCKIE: Let's not get competitive about it, for goodness sake. How did you do it? And you better explain the scaffolding. That's not yours, is it? That the previous owners'.

JANE MILLER: No, it's in the process of being renovated.

JENNY BROCKIE: OK. Where is it, the house?

JANE MILLER: It's in Geelong. I was working and living in Melbourne and I'm very lucky to have a very portable career. I was offered a job in Geelong which is a regional centre about an hour from Melbourne and really moved for career reasons more than anything but was looking for a rental and flipping through the real estate booklets and thinking, you know, looking at the houses I've always wanted to own and realising that actually in Geelong it's still affordable. So the houses in Geelong are about half, half of what you'd pay for the same sort of thing in Melbourne.

JENNY BROCKIE: Now, the thing I find interesting about your story is you're a professional. You're a vet.

JANE MILLER: Yep.

JENNY BROCKIE: You couldn't afford to buy in Melbourne?

JANE MILLER: No, I was waiting for a husband but that never came either so I've had to do it by myself and I've been thinking about maybe renting my dog out to some ad to bring in a little bit of income but he's not complying. So I've had to do it by myself and, look, I actually went to banks and I would be able to borrow enough to buy a house in Melbourne, in probably outer suburbs, certainly not anywhere near the CBD, but I wouldn't be able to comfortably repay it.

JENNY BROCKIE: But you're borrowing 100% of the value of this house.

JANE MILLER: I'm borrowing 100% because the deposit I've so carefully saved goes on all this other stuff I didn't know you had to pay to buy a house.

JENNY BROCKIE: A lot of people discover that, I think.

JANE MILLER: And my mum obviously knows me very well 'cause they didn't want to do what you did.

JENNY BROCKIE: How much of your income is going on your mortgage?

JANE MILLER: At the moment it's just under 50%, but I've..

JENNY BROCKIE: Wow, this is extraordinary. All these people with 50% and in some cases much higher than that. Are you worried about 50% of your income?

JANE MILLER: I would be worried about it but in my job, I'm very lucky in that in about three months I go on to a percentage of what I earn so I'm..

JENNY BROCKIE: So you're looking at an increase in salary.

JANE MILLER: So I'll be fine unless I lose my job and apparently I have to get What do I have to get? Income insurance. I didn't know about that one, so I'll get that and I'll be right.

JENNY BROCKIE: Alright, Julian Disney, you chair the national housing affordability summit. How common are the kind of arrangements that we've heard about tonight at the moment and how much more common are they than they used to be?

JULIAN DISNEY, SOCIAL JUSTICE PROJECT, UNIVERSITY OF NSW: Well, they're very common and they're getting worse. The proportion of household income that's required now to pay for median housing has doubled from, say, 10 years or so ago and that's even though incomes themselves have gone up sometimes voluntarily because we've got two incomes now in a lot of families rather than just one but sometimes involuntary and that's one of the factors we're getting here is that it's aggravating in some ways overwork within families and will put strain on families and on parenting relationships in order to service these huge and I must say frightening levels of debt that are being taken on.

JENNY BROCKIE: Georgie, you're 28 and you and your partner Alex rent in inner Sydney. Can you afford to buy a house?

GEORGIE SMITH: Unfortunately, no. I started researching a few months ago. I'm 28, I started getting the itch to be able to put nails in the walls wherever I wanted and it didn't take long for me to realise that it was absolutely out of my league and so I've pretty much stopped looking for the moment and I'm starting to build 5- to 10-year plans on how to get my own home.

JENNY BROCKIE: Daniel, you're bucking the trend here of what everyone else is doing. You're an anaesthetist. You have four kids. You presumably could afford to buy a house, but you rent. Why do you rent?

DANIEL COX: Well, over, you know, over many years of this bubble, I've three times come close to buying a house and with the exception of the time in 1998, I'm staggeringly much better off now than if I had bought in the past.

JENNY BROCKIE: How much is staggeringly better off?

DANIEL COX: Hundreds of thousands of dollars of equity where I would have nothing if I had bought.

JENNY BROCKIE: So what have you done with your money?

DANIEL COX: I've invested it moderately unsuccessfully in the share market. Um, but

JENNY BROCKIE: But you still think you're better off moderately unsuccessfully in the share market than you would have been if you bought. Is that because you would have bought a very expensive house?

DANIEL COX: No, I would have bought a house I didn't want to live in. Now, I live in an absolutely wonderful house. It costs me a fifth as much per week to rent it as it costs the owner to own and maintain it when I take into account the money he could have in the bank.

JENNY BROCKIE: And how much do you pay in rent?

DANIEL COX: I pay $950 a week rent, um, but until recently I was paying $410 a week rent on a house that was worth $750,000. So that owner was paying $1,200 a week to own that house. I've got no idea when house prices will fall and frankly I don't care because I live in a wonderful place. I'm very financially secure because I don't own a home.

JENNY BROCKIE: What do you reckon, Ross?

ROSS GITTINS: Well, look, I think it is true when you consider how much the price of houses have risen, renters have been doing pretty well because rents have not been rising in line with house prices.

JENNY BROCKIE: We're being told they might be about to.

ROSS GITTINS: Yes.

DANIEL COX: By the Real Estate Institute. Rents aren't determined by capital prices.

ROSS GITTINS: I think it's true that it'll be very difficult for a lot of landlords to raise their rents as much as they'd like to.

JENNY BROCKIE: But just getting back to this issue here with Daniel. Do you think he's made the right decision in economic terms? Do you think he made the right decision?

ROSS GITTINS: In very narrow economic terms, yes, um, but really, I mean, that's a matter of choice. If he doesn't gain a lot of psychic income out of owning his own home then, yes, he's done his

JENNY BROCKIE: “Psychic income”? Now there's a real economist's, a real economist term.

ROSS GITTINS: What do you think these people are borrowing so heavily and committing such a huge proportion of their income? They want to own their own home, and that's not about economics.

JENNY BROCKIE: It's just the term “psychic income”, Ross, I love it. I'll borrow that, if I can. Despite record prices, as we've seen people are still buying, so how easy is it to borrow money large sums of money. So I'd like to just talk to a few of our people here about that. Now, Tushar, you've, um, you and your wife are planning to buy with a non-deposit home loan, so no deposit. We've heard about a few other people borrowing 100%. How much are you going to borrow?

TUSHAR TRIVEDI: Well, combinely, we have borrowing capacity of $420,000 and, um, the worst part about it is the houses that we like in areas that we plan to live are more than $420,000, so although we have amount of deposit saved for our house, we're just not sure whether to put that all into buying a house or to keep it as a safety net.

JENNY BROCKIE: OK, what percentage of your income would go on repayments if you borrowed that amount that you're entitled to borrow?

TUSHAR TRIVEDI: Unfortunately, it would be around about 60% so that's that's if we go borrow up to $420,000.

JENNY BROCKIE: Chelsea, you're 23 and you've tackled this in a different way to some of these other people, haven't you? You've borrowed $140,000 to buy a small unit on the outskirts of Adelaide. What's the term of the loan?

CHELSEA HUGHES: It's a 40-year loan.

JENNY BROCKIE: A 40-year loan?

CHELSEA HUGHES: Yes.

JENNY BROCKIE: Why did you go down that path?

CHELSEA HUGHES: I went down that path because, like you say, I'm 23, I haven't travelled yet and I would still like to maintain a good lifestyle. Um, I'd still like to be able to save so having a minimum requirement at the moment suits me and my life and gives me the flexibility to still be able to do some things in the next few years and, um, and yeah, and then in a couple of years I'll refinance when I'm in a more stable position.

JENNY BROCKIE: John, what do you think about 40-year loans? Do you offer them?

JOHN SYMOND: I'm not a fan of long-term loans. I think 25, 30 years is plenty. Those loans being offered are up to 50 years, I think aren't good for the borrower and in the case that we just spoke about, my advice would be if you get an extra spare $10, $15, $20, pay your home loan, pay the debt off sooner, not longer.

JENNY BROCKIE: Otherwise because you're paying a fortune in interest.

JOHN SYMOND: You'll be paying an extra for 40 years compared to, say, 30 years you'll be paying the same amount. If you're borrow $130,000 it's going to cost you another $100,000. So my advice is you should pay debt back sooner than later because the size of the debt today is so much greater.

JENNY BROCKIE: We've heard a bit tonight about how easily available money is for home buyers. I'd like you to just have a look at a few of the ads which show just how easy it is to borrow money for all this unaffordable housing.

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JENNY BROCKIE: Well, John Symond we're not going to go into the ins and outs of each individual company here but I know most of your business these days is brokering loans. Do you broker loans for people with no deposit or with poor credit rating?

JOHN SYMOND: Not poor credit rating. We do provide access to no-deposit loans but it's really critical that our advice is try to ensure that they have plan B because never has there been a time that you've really got to do your homework. I personally don't like people borrowing money without a deposit but for those who have worked out plan B if they lose an income if interest rates go up, that's fine, it works for them. But never before is it more critical to do your homework because the amount of borrowings today is huge.

JENNY BROCKIE: But you are making a lot of money out of this. I get back to that point. I mean, how do you square that?

JOHN SYMOND: Consumers are demanding it. It's like going to Woolworths. Consumers are demanding that you've got these products. All we can do is try to assist borrowers to ensure they don't get themselves into trouble.

JENNY BROCKIE: Amy, you're a solicitor at a consumer law centre in Canberra. What do you think about lending?

AMY KILPATRICK, CONSUMER LAW CENTRE, CANBERRA: Well, it's interesting to hear John talk about people doing their homework. As a consumer advocate what I often see is lenders not doing their homework, lenders not asking any or very few questions of the people they're willing to give $500,000, not getting to know the borrowers. Now, there's a big difference here what I'm saying between a bank and a sub-prime lender. Those include

JENNY BROCKIE: What is a sub-prime lender? You better explain for people what that means.

AMY KILPATRICK: Absolutely. They're not deposit-taking institutions. That's what a bank is, a credit union, building society. They take deposits and that from you and savings accounts and that's what they use to actually put forward in other means put forward to invest in other people's housing loans. Now, the sub-prime lenders don't do that. They don't have savings accounts where they, you know, pay you a little bit of interest and use your savings to invest in other ways. The sub-prime lenders get the money they give to you by actually going to the international monetary market. That's where they get the money to lend to you, but to come back to the point about doing your homework, banks, under the Banking Code of Practice and under the supervision that they have under the Federal Government, are required to do their homework to make sure they get to know the borrower before they actually put up all this money. No-one's looking over the shoulder of these non-bank or sub-prime lenders to make sure they're ever getting to know the lender.

JENNY BROCKIE: Let me be a devil's advocate here. What about the people who have been enabled to buy their own homes by some of these loans who might not otherwise have been able to do that?

AMY KILPATRICK: No-one's being saved or helped by being given a loan they can't afford. That is doomed to failure. No-one's being helped in that way.

JENNY BROCKIE: But is everybody doomed to failure?

AMY KILPATRICK: I don't think everyone's doomed to failure. I think a lot of these sub-prime lenders know that people will do anything – they'll go without food to make sure they can make payments on their home loans, they'll live on their credit cards to make payments on their home loans. They know people will do anything to not fail on a home loan.

JENNY BROCKIE: What are you arguing for, Amy? More regulation on this sector?

AMY KILPATRICK: Some regulation.

JENNY BROCKIE: Any regulation?

AMY KILPATERICK: It's not actually regulated.

JENNY BROCKIE: John, is this a case for stronger regulation of this sector?

JOHN SYMOND: I think there's a need for regulation, especially in the broking area, but the brokers don't lend their own money – all they do is do the paperwork and pass it on to the lenders, but some of the sub-prime lenders or low doc lenders do help a certain sector.

JENNY BROCKIE: Maude, you wanted to say something.

MAUDE THOMPSON: I was going to say when I first considered taking out a home loan I went on the Internet and looked at all the fancy web pages and one company called me and it was for a no doc loan and so all they had to do all I had to do was present them with an ABN and a record of some sort of recent trade I'd done and that was it and it was on the Internet it looked like a big brand but when you spoke to them about what they would able what they would actually do it was very dodgy and it just opened my eyes.

JENNY BROCKIE: Comments over here. Yes?

FELICITY GLENCROSS: We very nearly got pushed into a house and land package 1.5 years ago and we'd done the number crunching, we worked out “This is what we're earning,” I wasn't earning at the time, “This is what we could afford,” so we knew our budget. The chap was really pushing. You can do.. He said, “How much do you get on family assistance?” Like, I wasn't even including family assistance as part of our income. He was pushing us to sign on the dotted line and we had to say, “We don't think this is really a good idea.” We don't think we're going to be able to cope with this.

JENNY BROCKIE: It's very tempting if you want to buy a house and someone's throwing money at you.

FELICITY GLENCROSS: But we know someone from that company who got the sack because he was over-servicing his clients. He was saying, “Now, listen, can you do this if your car breaks down?” and he got the sack.

JENNY BROCKIE: Robert, are people riding for a fall with all this? I mean, how much could interest rates go up over the next few years and what might happen, what could happen to people who are taking out these loans at higher rates and, you know, stretching themselves the way we've heard tonight?

ROBERT MELLOR: Look, I think we can be fairly confident that we're in for a period of higher interest rates over the next five years than what we've had an average over the last five. Today we're at about 8.1%.

JENNY BROCKIE: So if you've got a $400,000 loan, as we've heard a few people here have, and a rate rise of say, what…?

ROBERT MELLOR: 0.75%

JENNY BROCKIE: 0.75% over what period of time?

ROBERT MELLOR: I would say over the next 4 to 4.5 years, 0.75%, there's a fairly strong probability of that sort of magnitude and it could be worse.

JENNY BROCKIE: So what's that in extra repayments on a $400,000…?

ROBER MELLOR: On a $400,000 loan that'd be $200 a month.

JENNY BROCKIE: Kirstin, could you cope with that – another $200 a month?

KIRSTIN SAVOPOULOS: Yeah, definitely, and I also know too over the next 3-4 months I've got two small pay rises coming up anyway, so, yeah, definitely.

JENNY BROCKIE: What about other people? How would you feel about that kind of rate rise over the next few years? Yes, Maude.

MAUDE THOMPSON: What people don't seem to be mentioning is the percentage that they're actually paying off the loan, you know. I'm hearing these figures and I'm appalled because to me the principal wouldn't be touched. How long they would be touching the principal, do you think?

JOHN SYMOND: Oh, at that rate, before it's significant, probably 10 years.

MAUDE THOMPSON: They could have been renting.

ROBERT MELLOR: The thing is actually for the next probably 12 or 18 months, people will be better off renting, particularly in the Sydney market, until you're really sure the market's bottomed, particularly when we're talking about people at the lower end of the market who would be buying in properties of, say, under $400,000 or $450,000 in the outer suburbs. You'd still be better off for at least another 18 months, maybe even two years, before we've seen such significant growth in rents that would justify that you, you know, that you're better off to get into the market and certainly – certainly maybe in three years time rents will have risen so much I suspect that basically that would be a real catalyst to get you in the market.

JENNY BROCKIE: But then, if everyone floods into the market, prices will go up again.

DANIEL COX: How do will we know the market's bottomed without it having become cheaper to own than to rent because and I wonder if your prediction for enormous rent rises is to come to pass – the Reserve Bank calls that inflation and will jack up interest rates.

ROBERT MELLOR: That's right. The danger is higher rents ultimately lead to higher inflation.

DANIEL COX: I don't think anyone can call the bottom until it's cheaper to own than to rent and that's an awful long way from here.

JENNY BROCKIE: Ross, can I get your views on this? First of all, this 0.75% increase over five years – would you see it being something like that or more?

ROSS GITTINS: I think that's a very conservative – that is to say pessimistic outlook. I'd be very surprised if in five years time interest rates are 0.75% higher than they are now. But, I mean, it's… When you..

JENNY BROCKIE: So do you think they'll be higher or lower?

ROSS GITTINS: No, I think they'll be lower or at least I don't think they will have risen by that much and I'm not at all sure that in the next five years we won't see a recession. If we do see a recession, rates will be coming down, not up.

ROBERT MELLOR: Of course with a recession people will be losing jobs.

ROSS GITTINS: That's very true.

ROBERT MELLOR: Here's the negative. Obviously if we don't get higher interest rates the only reason you get lower interest rates is if you go through a significant economic slowdown, growth gets back to 1%-2% or if you go into recession and it's down near 0% growth rate then interest rates might fall a percentage point or so.

JENNY BROCKIE: John Symond, you're mostly brokering loaning as I mentioned earlier, but you still do lend as well. Are more people defaulting?

JOHN SYMOND: Sure. Clearly there is an increase in people who are struggling to keep their payments up and I agree with some of the comments. I don't believe interest rates on a normal home loan is the problem – it's the level of debt or getting into an expensive loan at much higher interest rates than a typical home loan.

JENNY BROCKIE: Leighann, you know what it's like to lose a home, don't you?

LEIGHANN CHESLIN: Yes.

JENNY BROCKIE: Now, this was your place – I think we've got a photo here – in Melbourne until a few years ago when you lost your job. How much debt did you have?

LEIGHANN CHESLIN: Um, it was only about 30-odd thousand in credit cards but because the credit card companies were pushing for payment and I was out of work and was making sure I was making my mortgage payments, um, I had to end up selling the house just to pay off the credit cards.

JENNY BROCKIE: And where do you live now?

LEIGHANN CHESLIN: I still live in Narre Warren but I'm renting.

JENNY BROCKIE: And how are you managing financially? Do you think you'll ever own a home again?

LEIGHANN CHELSIN: Not at this stage. I mean, admittedly I've had a drop in wages because I'm studying and working part-time but even if I go back to full-time I think it will be a struggle. I'd have to move into something a lot smaller probably. The other thing is that I'm renting and I'm actually paying more in rent than I was paying in mortgage on the house I used to own.

JENNY BROCKIE: Gosh. So how does that feel?

LEIGHANN CHESLIN: Oh, rotten

JENNY BROCKIE: Yeah, I bet it does.

LEIGHANN CHESLIN: because I haven't got any chance of saving at all at the moment.

JENNY BROCKIE: And how did you get into that much debt?

LEIGHANN CHESLIN: Um, well, being out of work for 12 months and only having casual work here and there and, um, trying to make sure I made my mortgage payments each fortnight and then thinking or bills would come along or something would break down and I'd think, “I haven't got the cash, so I'll use the credit card.”

JENNY BROCKIE: So your story is really a story of things can go wrong, really

LEIGHANN CHESLIN: Yeah.

JENNY BROCKIE: for everybody here.

AMY KILPATRICK: And credit cards being given out like lollies. I hate to be so flippant about it but credit debt in Australia has ballooned from in 1996 $5 billion to now $31 billion we owe on credit cards in such a short period of time. It is really concerning and someone's got to put the brakes on credit.

JENNY BROCKIE: We are going to look at whether houses could become more affordable or whether it's likely we're going to have to look at different ways of owning a home or of living, for that matter and if buying a home is a stretch on two incomes, what about on a single income? The number of Australians who live alone and as one-parent families is over 4 million people and growing. Here's Shaun Hoyt.

MAUDE’S STORY:

REPORTER: Shaun Hoyt

Maude Thompson and her 2-year-old Hannah live in Echuca. It's a thriving country town on the Murray River in Victoria.

MAUDE THOMPSON: And that is the little dock for the 'Mary Ann'.

Maude is 39 and before Hannah came along, she travelled, had adventures and was an aid worker with the UN in Afghanistan. Like some others of her generation, she's enjoyed not being tied down, but when her partner left her, Maude decided, as a single mum, she should try and buy a home. She thought here in the country she could afford it. She had $30,000 in savings.

MAUDE THOMPSON: I just thought the best thing I can do to secure a home for us is to buy one and to use that little bit of money to start that.

Maude has a job at the local council. She earns $53,000 a year and runs a community housing project. But now it's her own housing that's becoming an issue. Six months ago she bought the cheapest place she could find – a former housing commission house. It cost $155,000 and she thought it was a bargain.

MAUDE THOMPSON: It was one of those snapshot moments because, um, my father was here at the time and I don't get to see him very often and I can remember pulling up out the front, we went up to the for-sale sign and there was a sold sign on it and he knew nothing and the agent was there as well and I just had Hannah in my arms and I said, “Look, Dad. See that sold sign? I bought it,” and he was ecstatic.

But the excitement soon wore off. Interest rates were going up, child care was costly and running a house more expensive than expected.

MAUDE THOMPSON: Unfortunately reality kicks in pretty soon and what a lot of people don't realise is that when you buy a house it doesn't stop, you know. You get so caught in the, you know, in the journey of going into the bank and signing the papers and taking possession of this property that you forget that, um, it doesn't end there, that there are expenses that come along the way after that.

Maude thought she'd done her calculations carefully but now she feels she's going backwards. Her $800 monthly repayments only cover the interest on the loan. She's not touching the principal. And the house wasn't such a bargain after all. She's had to take out an additional loan for essential repairs.

REPORTER: How expensive is it?

MAUDE THOMPSON: Well, let's see. I've spent $20,000 on it. I probably have another $20,000 to go and I've just found out that the plumbing has had it and they're talking about digging up the entire backyard and that's going to cost thousands. I'm swimming as fast as I can and I'm not getting anywhere really. I don't know what else can I do. I'm a professional, I work hard, I have a good job and I'm living like a pauper and I have no money. It's still too big for you, sweetheart.

REPORTER: Do you think you're going to sell it?

MAUDE THOMPSON: Yep, I do, I do, and I've tried so hard.

REPORTER: How will that feel?

MAUDE THOMPSON: Sad but relieved, relieved.

Having decided to sell, Maude is reconciled to a future renting.

MAUDE THOMPSON: I have a choice. I can pay the bank or I can pay a landlord and at the moment I'm better off paying a landlord because a landlord will fix the plumbing. At the moment I do it myself.

REPORTER: And what does the Australian dream of home ownership mean in your situation?

MAUDE THOMPSON: It means trying to achieve the impossible, trying to live up to a fantasy that isn't possible.

JENNY BROCKIE: So, no psychic income for you.

MAUDE THOMPSON: No.

JENNY BROCKIE: And I'm interested in the fact that you have a good job, you've had good jobs and you just couldn't do it – you just couldn't pull it off. How much money would you have needed to make it work, do you think, extra money and what didn't you anticipate?

MAUDE THOMPSON: Um, when you rent you get used to it being regular, a fixed amount at a regular time, and it comes out and you don't think about it. And if the plumbing breaks down it's fixed by somebody else. You know, there's no variables. There's not so many unexpected things that happen.

JENNY BROCKIE: I know it was really important for you, though, wasn't it? We got that sense from that story that it was really important for you to own a home because of your background too.

MAUDE THOMPSON: It was because I have a 2.5-year-old and I wanted her to feel like she could play in a backyard. That was the major factor. I didn't feel I could rent comfortably in Echuca and be able to have a backyard in that price range.

JENNY BROCKIE: Stewart Davies, you work for an online magazine and, like Maude, you've spent time travelling overseas and so on but you're now married with a child, you rent an apartment in Sydney. What's happening to your rent?

STEWART DAWES: Well, it's um, suddenly going up from – it was pretty well when the stories came out recently in the 'Sydney Morning Herald' about “rental crisis”, “rents too low”, which was sort of a flip side was, um, was that house prices were too high really and landlords were struggling, um, so about a week or two later, the landlord put up the rent. He sent us a letter saying it's going up from $305 to $385 which was pretty modest apartment, no air-conditioning, a couple of bedrooms, but one of them is more like a nursery room and, you know, of course I look at it like, well, that's $80 a week, that's four grand a year.

JENNY BROCKIE: Julian, what do you think about this? We've heard a lot about this looming rental crisis and it's been written about a lot. How real is it or how much is it being beaten up by the real estate industry to try and get people to get out there and buy properties?

JULIAN DISNEY: Well, firstly we had a major problem even before it started. We had hundreds of thousands of people paying above the generally recognised affordability benchmark which is 30% of income. But, of course, if house prices have gone up, and they've gone up to quite an extent through excessive incentives towards home ownership which have inflated house prices and, in fact, are killing home ownership, we're killing it with kindness through excessively generous tax treatment, and one of the things that's done is, of course, driven up the prices that investors have paid and, of course, they're going to want to recover it in rent.

JENNY BROCKIE: So are you saying the boom has been partly fuelled by government policy on things like taxation?

JULIAN DISNEY: Oh, yes, I think there's no question about that.

JENNY BROCKIE: But there's a great irony here, isn't there?

DANIEL COX: Who's going to pay those rents if most of those people are already paying 30% of their income? It's not going to happen. No amount of speculator fantasy is going to make those rents rise to 100%.

ROBERT MELLOR: Talk to the people in Perth where they have already risen 20% over the last 12 months. It's already happening.

DANIEL COX: People are moving to Perth because of a mining boom.

JENNY BROCKIE: Can I just pick up something you said because there is a great irony here, isn't there, in terms of the Government creating through some of these policies that this sense that the boom takes off because of the taxation system, because of all these other incentives and then, at the same time, the Government has this massive problem with very unhappy people who can't afford houses who are their electors.

JULIAN DISNEY: Can't afford to buy them and also won't be able to afford to rent them. We've just overdone the encouragement of home ownership and we've actually hindered home ownership and we're also hurting rents as well. Rents will go up but whether they'll go up astronomically is in a way not the key issue at the moment. The main thing is they're already unaffordable for most people and they're going to get worse. How much worse in a sense doesn't matter too much because the crucial issue is we've got to improve supply of low-rent housing and negative gearing and other distortions encourage high rent-housing and they encourage speculation in housing not investment in constructing new housing.

JENNY BROCKIE: Ross?

ROSS GITTINS: It's certainly true that there are tax distortions and when you talk about the government introducing measures to offset distortions that's the way politicians work – they've squared away too groups. What's your problem?

JENNY BROCKIE: Well, the problem is the rebound effect, isn't it?

ROSS GITTINS: The problem is for the taxpayers who are paying for it and not benefiting from it.

JENNY BROCKIE: You mentioned a recession before. Now how likely do you think a recession is? The economy's chugging along and everyone's saying it's doing well.

ROSS GITTINS: I can't see signs right out there now that says I can see a recession coming. I just know I've been around long enough to know that if you wait long enough you get another recession and we've actually been waiting 15 years. There's a sense in which the next recession is overdue. So I don't doubt that, one of these days, for reasons that take us by surprise, perhaps something happening overseas, we will have another recession in Australia. When that happens, and when people start losing their jobs, that's when you will really see, housing pressure and pressure on people's mortgages.

JENNY BROCKIE: In the meantime, is there anything that can be done about housing affordability in this country at the moment? Are there things that Government could be doing to improve the situation?

ROSS GITTINS: There are. I think we, but..

JENNY BROCKIE: Like what, Ross?

ROSS GITTINS: Well, like things that add to supply, not things that prop up demand. When you make prices more affordable, you just push them up. What you have to do is add to the supply of new houses coming on to the market.

JENNY BROCKIE: And how do you do that?

ROSS GITTINS: Well, you do it by putting up more emphasis on land release at the edges of cities. We've been through a period where we haven't had much of that. I think it's time for us to do that.

JENNY BROCKIE: And, John Symond, as someone who's made a lot of money out of this whole boom, what do you think about some of the suggestions that have been made here tonight?

JOHN SYMOND: Some suggestions I think are spot-on. The land release is a real concern. The bureaucracy holding it back – it's just not efficient, it's not fast enough, and, more importantly, governments are quite greedy when it comes to revenue raising and the cost of infrastructure and providing all those services are now primarily borne by the developer and passed on to the buyer, so the cost base doesn't work, and I've seen statistics where the average block of land, right out, is $100,000, $140,000 in effectively taxes. So you're on the wrong foot from day one because instead of Government absorbing a lot of those services, they now shift it on to the end buyer, and that's a problem.

JENNY BROCKIE: We've heard tonight about a few different ways people have gone about buying houses and the Government owning 40% of your house, mum having a big role in your house and mum having quite a role in the house over here as well. Georgie, we talked to you before about wanting to buy a house and not being able to afford it. What will you do if push comes to shove and you still can't afford it in five years? What will do you do? Will you look at some different sort of arrangement?

GEORGIE SMITH: I've already got a couple of different ideas that are percolating just going on the backburner but they may have to come into play. One is I've already started speaking to my friends about the possibility of us going into some sort of communal arrangement, you know, buying a farm or something like that, which would incorporate accommodation of getting into the market but also embracing a lifestyle change that a lot of us would like.

JENNY BROCKIE: Well, good luck and good luck to all of you too with your home loans and your house hunting. I hope it all goes well and let's just hope that those interest rates don't go up too much and everybody survives.

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