Tax and legal advice

Top lawyer dismisses 'bubble' talk as ‘extraordinarily dangerous’

By James Mitchell

One of the mortgage industry’s most respected lawyers has spoken out about recent media reports on rampant mortgage fraud and an Australian property bubble.

Gadens partner Jon Denovan told Sterling Publishing that recent reports in the Australian Financial Review about loan applicants being told to lie about their income and the collapse of the housing market were “extraordinarily dangerous” and “sensationalist journalism at its worst”.

The leading financial services lawyer referred to a news article that appeared on the front page of Wednesday’s AFR, titled 'Uncovering the big Aussie short'.

The newspaper reported that hedge fund manager John Hempton and economist Jonathan Tepper posed as a gay couple with a combined income of $125,000, viewing housing developments and meeting mortgage brokers in Sydney’s outer suburbs.

“What they discovered repeatedly was that mortgage brokers were advising them to lie on loan application documents about the deposit for a house and about income,” the AFR reported.

Mr Tepper told the AFR that “Australia now has one of the biggest housing bubbles in history”.

However, according to Mr Denovan, the alleged fraud would have nothing to do with a bubble because the bank is still getting its valuation.

“It’s just that some people, if there was broker fraud, are getting put into loans which they can’t afford, which is bad stuff, but that doesn’t cause a bubble,” he said, noting that the AFR ran follow-up stories in yesterday’s paper about the issue.

“It’s extraordinary. In yesterday’s paper they put about three pages into it.”

Commenting on reports of broker behaviour, Mr Denovan said no serious mortgage volumes are being written except through the big aggregators, which have “good checks and balances” and high standards among their brokers.

“At the same time, the banks are reviewing loans more carefully than they used to because the regulators have been on their back,” he said. “There has always been fraud, but to suggest that fraud could be on a level to create a housing bubble, it’s not possible.”

Much of the hysteria this week has referenced The Big Short, a newly released Hollywood film that explores the US sub-prime mortgage crisis.

“What happened in America wasn’t to do with fraud,” Mr Denovan said, “it was about responsible lending requirements and no personal recourse. It’s completely different.”

Earlier this week, Ben Kingsley, chair of Property Investment Professionals of Australia and director of Empower Wealth told The Smart Property Investment Show that Mr Tepper's comparisons between the Australian market and those of other countries were largely redundant. 

“How did we get through the GFC? Well, we didn’t do stupid things like lend people who are unemployed money. Like in America, you could get money, because what happens is your servicing calculator is based on a certain level of servicing, so depending what your income is, if you had $30,000 you could borrow $600,000 in America. That’s crazy stuff.

“Whereas right through, before the GFC and even with lower interest rates, we set our assessment rates at as low as 6.5 per cent – that was as low as it got. So even though interest rates came in lower, we didn’t adjust that servicing ratio and then that borrowing capacity didn’t explode like it did in, let me guess, Ireland, Spain, the US, those types of places,” Mr Kingsley said.

Mr Kingsley was talking after Mr Tepper's appearance on a 60 Minutes segment broadcast on Sunday night, which also featured the struggling mining town of Moranbah

Hear more of Mr Kingsley's comments on the latest episode of The Smart Property Investment Show. 

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  ["id"]=>
  string(5) "18297"
  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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  string(72) "mortgages-in-a-tighter-lending-economy-and-why-brisbane-is-a-good-option"
  ["introtext"]=>
  string(255) "

Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

" ["fulltext"]=> string(818) "

To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
  • Interest only loans and if that is the way to go<\/li>\r\n
  • How the mortgage division supports the overall business of Rethink Investing<\/li>\r\n<\/ul>","clientImage1":"images\/podcasts\/Son-Pham.jpg","clientUrl1":"https:\/\/rethinkinvesting.com.au\/","clientName2":"OpenCorp","clientDesc2":"

    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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    • Why Brisbane is a good investment option right now<\/li>\r\n
    • How he wants to help clients take advantage of the current market<\/li>\r\n
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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

" ["fulltext"]=> string(2483) "

In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1197 (52) {
  ["id"]=>
  string(5) "18287"
  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

" ["fulltext"]=> string(2323) "

Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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