DJ Australian Banks Boost Home Loans Despite Record Negative...

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    DJ Australian Banks Boost Home Loans Despite Record Negative Equity - Study

    SYDNEY (Dow Jones)--Australia's banks are so desperate to drive mortgage growth
    that they are increasing their loan to value ratios at a time when a record number of
    homeowners are in negative equity, according to a report released Wednesday by Fujitsu
    Consulting and J.P. Morgan.
    About 6.4% of homes across the country are now valued at less than their initial
    purchase price, the joint study found, confirming data from the RP Data Equity Report for
    the December quarter released this week.
    The average mortgage cost in Australia is now twice what it was in 2005, said Martin
    North, the executive director of Fujitsu Australia and New Zealand.
    "Nearly one in three borrowing households have very little free cash," he
    said.
    "The rising cost of living, coupled with negative equity for some, is putting
    these households under extreme and long-term pressure."
    Yet the average loan to value ratio offered by Australia's big four banks--ANZ
    Bank (ANZ.AU), Commonwealth Bank of Australia (CBA.AU), National Australia Bank (NAB.AU)
    and Westpac (WBC.AU)--has risen to 68% from 64% in recent months as banks have tried to
    boost lagging lending growth.
    The growth in loans to first-time buyers of between 90% to 95% of the value of the
    property--the type of leverage seen in the U.S. before the sub-prime mortgage crash--has
    also "seen a significant escalation," with some banks now offering loans of 95%
    to 100% of the property value, the Fujitsu-J.P. Morgan report said.
    Australia's banks have been well-regarded in the global financial system due to
    their high levels of capital and low exposure to the bad debts that have rocked their
    peers in Europe and the U.S. in recent years.
    However, slowing credit growth in Australia--which Fujitsu and J.P. Morgan pegged at
    3.5% in January on a 12-month annualized basis and expect to remain in the
    "mid-single digit range" for years to come--means the banks now face slowing
    profit growth at a time when the cost of raising funds overseas remains high.
    Australia has entered a "new normal" for the mortgage industry, with slower
    growth in home loans likely for years to come, J.P. Morgan banking analyst Scott Manning
    said.
    But he said the Big Four banks are unlikely to be able to raise interest rates any time
    soon, as any rise in funding costs this year is likely to be limited to between 5 and 10
    basis points, compared to an average rise of 25 basis points since mid-2011.
    "We have seen a fundamental shift in risk appetite by borrowers, lenders and
    regulators leading to a more subdued home lending environment," he said.
 
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