house prices fall 0.8 per cent in 4th quarter , page-129

Gosh what a lot of rambling...

For the record:

1. House prices will not fall by 40%... No Way! Yes Australia is the most unaffordable country in the World to live in... but 40% fall in property prices is not realistic. I'll even bet $500 with every person who wants to take it up (any capital city [average percentage fall] in Australia - next 2 years).

2. There is a big difference between Owner Occupied Housing Finance / Residential Investment Finance / Business Finance and Commercial Property Finance. These are the fundamental differences:

a) Owner Occupied Residential Finance:

i) is Consumer Protected by the UCCC or the Uniform Consumer Credit Code you can read all about it here http://www.creditcode.gov.au/

ii) Is controlled by Banking Policies. In recent times there have been two primary areas of finance here:

*) Full Documentation - provide all supporting evidence of capacity to service debt.

**) Low Documentation - Otherwise referred to as "Liars loans" - the mortgagee self declares their income. Is used primarily for Business Owners who can not provide their financials but there are instances where PAYG can also self-declare (these products are slowly being removed form the market due to Mortgage Insurer guidelines limiting risk).

Banking (as opposed to Mortgage origination &/or NBFI's (Non-Banking Financial Institutions) policies since the Financial collapse have in the main (though there are exceptions) reverted back to pre-2000 policies which in a nut-shell are:

*) Prove capacity to Service Debt (Debt/Service Ratio usually 2.5X+)

**) Prove 2 years plus of continuous employment

***) Prove genuine savings

****) Loan to Value Ratio of <=80% when all above is marginal and >80%>95% when Lenders Mortgage Insurance is available.

These UCCC loans are usually PRINCIPAL AND INTEREST with terms of up to 30 years. This P&I requirement can be mitigated in part by use of a Line of Credit.


b) All other loans are NON-UCCC. Business Loans, Commercial Property Loans and Residential Investment Loans. What this means in a nut-shell is that the person taking out the loan is not protected by Statute and must refer to Common Law Principals. As such Terms and Conditions can be negotiated and determined at will. The Bank can do what ever it deems fit to protect its assets and as such can instigate a default under amy terms or conditions agreed and stipulated in the contract. It is assumed under these contracts that the person / company / trust or otherwise is competent and sophisticated to understand the risks of their undertaking.

Hence under these contracts in the main INTEREST ONLY TERMS are available to those entities whom show a strong capacity to service debt for existing and new forms of income and meet the Banks stipualted Customer Rating System which encompasses such factors as Industry, Length of Association, Past Credit History, MIS, LVR etc.


NOW as to Refinancing it totally depends whether the contract is UCCC or non-UCCC. YOU CAN NEGOTIATE WITH YOUR FINANCIER to EXTEND THE PERIOD OF INTERST ONLY at the end of the NON-UCCC contract but will need to prove capacity if the Bank deems necessary to do so. A UCCC Customer can not gain INTEREST ONLY except in very rare circumstances.

Oh thats right - as to Banks revaluing property - YES TO ALL COMMERCIAL PROPERTY AND BUSINESS DEBT is relevant to do so. You will notice that this Non-UCCC loans have not felt the 425bpts cut because there is a higher degreee of risk. Any large Commercial Property exposure and this includes multi-residential sub-divisions are under Banks micro-scopes as well as any sunset clauses, prepayments and the such like.