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05:08:50 am

Australia Home-loan Approvals Drop To 10-year Low As Rates Deter Buyers

The number of loans granted to owner-occupiers to build or buy houses and apartments dropped 1.5 percent to 44,968 in March, from a revised 4.7 percent decline the previous month, the statistics bureau said in Sydney today. That compares with the median estimate for approvals to rise 2 percent in a Bloomberg News survey of 20 economists, and was the lowest since February 2001, according to government data. Higher interest rates in coming months will keep demand and price growth in check, Matthew Circosta, an Perth home loans economist at Moodys Analytics in Sydney, said before the report. Reserve Bank of Australia Governor Glenn Stevens held the benchmark rate at 4.75 percent this month after boosting borrowing costs seven times from October 2009 to November 2010 to prevent a property-market bubble from forming in a nation where more than two-thirds of households own their homes. Property prices declined in the first quarter by the most since 2008 as floods in the nations east coast disrupted the market and homes listed for sale climbed alongside rates. The total value of loans fell 0.1 percent to A$19.3 billion ($20.4 billion) in March, todays report showed. Owner Occupiers The value of lending to owner-occupiers declined 1.1 percent, the report showed. The value of loans to investors who plan to rent or resell homes advanced 2.1 percent. First-home buyers accounted for 16 percent of dwellings that were financed in March, up from 14.9 percent in February and lower than 16.4 percent a year earlier, the report showed.
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'Low-doc' home borrowers hit by rising rates

Real estate

Adjusted for loans that passed from being in arrears to being settled because the property was sold, the percentage of prime loans more than 90 days in arrears increased from 1.33 per cent in the June quarter to 1.37 per cent in the three months to the end of September. However, Fitch says self-employed borrowers have been hit hard, which has pushed arrears among prime low documentation loans to a record 3.97 per cent - slightly higher than the previous peak of mortgage delinquencies in this segment reached during the peak of the financial crisis in the December quarter of 2008. This is a category of loans where borrowers meet the usual lending criteria, but are unable to supply sufficient evidence of their regular income, often because they are self-employed or contract workers with fluctuating earnings. The associate director in Fitch's structured finance team James Zanesi says higher mortgage repayments appear to be hitting the self-employed sector much harder than employees. "The three consecutive cash rate hikes ending in May 2010 modestly affected Australian prime mortgage performance in the third quarter of 2010. Households have demonstrated some stability in spite of the higher mortgage payments," he said. "The most vulnerable borrowers, such as low-doc and self-employed borrowers, have experienced the worst performance, with the increase in mortgage payments having an impact on affordability." The very worst performance in the September quarter continued to be amongst the closest equivalent Australia has to subprime loans -'low-doc, non-conforming' borrowers. The arrears rate amongst this group was 18.94 per cent, although it makes up a relatively tiny proportion of Australian mortgages. Fitch says it does not expect any substantial improvement in the level of delinquent mortgages until well into next year, as Christmas spending tends to drive people further behind in their repayments.
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