Analysis of data by a major bank shows that mortgage possession is looming around the corner, according to one property commentator.
With verified analysis from Macquarie showing that approximately one in 25 mortgage holders is in negative equity, Anna Porter, property commentator and principal of Suburbanite, said that this is the first warning that mortgage possessions are coming up soon, and warned that this is a threat to property investors.
“So, we see circumstances where an investor may have purchased a property, have a high loan-to-value ratio, often investors will borrow 100 per cent through equity out of their own homes and then 80 per cent against the investment property is the most common structure we see,” Ms Porter said.
“They’ve effectively got a 100 per cent loan, which means that if there’s any movement downwards in the market, they’re exposed to risk. So, as an investor, that’s why it’s so critical to get an investment property in a market that’s growing.”
What Ms Porter is now seeing is that there is a retraction occurring in the market, which means the mortgages of investors run the risk of being “underwater” or when debt outnumbers the value of the property.
“The risk there is, they can either hold it through that rough time, but the risk where it sets in is if there’s a few interest rate rises, some vacancy kicks in, or their tenants go into rental arrears, or even life changes like they get divorced or their financial circumstances change or their job becomes redundant, they then need to look at how they can get out of that investment,” she said.
Ms Porter said that a lot of property investors have been left with debts that were higher than the value of purchased properties, particularly with house and land packages in areas like Grasemere, Rockhampton, Cairns, some areas in South East Queensland, the Gold Coast, and particularly unit markets in Brisbane, Melbourne and Canberra.
“We’ve done reviews of portfolios where we’ve seen investors purchase at a level with high loan-to-value ratios and there’s been a retraction in the values and now they’re sitting with a property where the loan is greater than the value amount,” she said.
“Do they hold it? Do they get rid of it? Will there be more growth? They’re really looking for solutions because they know, financially, they’re underwater.”
The Coalition government’s First Home Loan Deposit Scheme may in the long term contribute to the number of mortgages in negative equity, Ms Porter claimed, and exacerbate the number of mortgage possessions.
“Essentially, these first home buyers will be putting themselves into highly leveraged positions by getting into property they can’t afford,” she said.
“Interest rates are at the lowest they have ever been in Australia, but yet people will not only have a mortgage to the bank but also a mortgage to the government.”
“Whilst this will not have a major impact on the property market as the number of first home buyers eligible for the scheme is capped, this will do no favours for the market overall.”
While properties that have been placed on the market due to people being unable to pay back their mortgagees may go for a steal, Ms Porter urged against investors picking up these properties.
“Having been a valuer looking after mortgagee-in-possession portfolios for years, I believe they are terrible buys in most cases,” she said.
“You can make good money off real estate and be a good human and not profit off other people’s misfortune.”