Rebuilding after property’s fall

Founder and Chief Investment Officer of Montgomery Investment Management
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In September this year, Australia’s richest man and biggest apartment developer, the property billionaire Harry Triguboff cited slowing foreign investor interest as a reason for his observation that “the slowdown in the apartment market is worsening,” adding “the number of new apartments sold had dropped and prices have fallen about 10% over the past six months.”

Separately, investment bank UBS reported the results of a survey of almost 1000 Australian mortgage holders who borrowed in the 12 months to August 2017, noting; “Our 2017 survey found factually accurate mortgage applications fell to just 67%. There are now ~$500 bllion in ‘Liar Loans’ on the banks’ books.

Meanwhile, interest-only mortgages increased from around 35% of total originations in 2013 to a peak of 46% in June 2015.  APRA’s decision however to cap the proportion of new interest-only mortgages at 30% of total originations for each of the banks from 1 July this year means that in just 2.5 years, the loans originated in July 2015 (46% of which were interest-only), will need to be refinanced and many borrowers will be forced on to principle-and-interest mortgages, and an associated increase in repayments of as much as 40% – even if interest rates don’t rise.

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