Big correction has already occured in chunks of Western Sydney (I have seen buyers dropping 20-30% on properties purchased in 2004) but is easing back, leaving a trail of broken bodies behind

Short version of my view:

*the boom is largely a function of  (a) massively increased levels of debt, (b) made possible by lenders increasing LVRs and relaxing credit  standards, (c) the expanded risk appetite of mortgage insurers and the international capital markets, and (d)comparatively low nominal interest rates.

*(b) and (c) are essentially reverting back to previous levels

*the size of (a) has made (d) meaningless

*considered together, assuming future buyers won't be able to borrow, in relative terms, what contemporary borrowers can, a significant correction/stagnation will occur.

Sulley,

If you're talking government bonds, isn't that essentially what the government will pay you as interest, rather than what banks are raising money with. Presumably, if you have a government-guaranteed bond with an implied yield of say 6.20%, you would want a good deal more from somebody less stable….. like a Bank?

A better measure would be the Bank Bill Swap Rate , which is the rate that bank's lend to each other. As an example, the 3 year bank swap rate today is 7.39% and the the 5 year rate 7.32%!

There's your problem!

As far  as the US economy is concerned…they are potentially in significant poop. I would think the key question for  Oz is to what extent the boom we riding courtesy of the Chinese is dependent on the boom the Chinese are riding couresy of US debt-driven consumer demand. What happens when Jimbo from North Dekota suddenly has negative equity in his property and thinks twice about buying the third 100" plasma for the garage?

While I'm on it, it's also worth remembering that though no-one talks about the current account deficit anymore (remember in the Hawke/Keating years when it was THE economic issue?), in spite of the fact we could probably export pure dirt at the moment and have someone buy it for $100/tonne, we are still importing more junk than we sell. If you're running a current account deficit of biblical proportions in the midst of an export bonanza and then the music stops….

Of course, if we had taken advantage of the most significant boom in living memory by investing in skills, infrastructure and education rather than creating the world's largest election pork barrell, perhaps we'd have plan B……

All,

Nerds in the financial markets are basically saying:

.25 next week
some small chance of another .25 in December but
almost certain of another .50 by June depending on if (when?) the US slides into a recessionary blip.

The 3 Yr inter-bank rate has jumped .30% in the last week or thereabout so I think you'll find mixed rates moving up pretty rapidly in the next little bit.

My guess – headline rate of 9ish percent by June…assume you'll be paying 8.60-8.80% in reality.

Nix,

The deposit bond/off-the-plan scenario got a lot of people into a lot of trouble (particularly) in Docklands some years ago. "Investors" looking to flip the property on completion or (worse) on-sell the contract prior to settlement found themselves holding properties worth less than they paid and in the unexpected position of having to settle deals they didn't intend to. This was largely due to significant amounts of stock coming on to the market at the same time and the high % of the "buyers" who all had the same plan – flip.

In any number of cases they were unable to settle and the developers called in the bond. It is worth remembering that if you fail to settle you will owe the insurer the $.

The question I would ask is whether you are looking to invest or speculate. That is, is your expectation a quick return your goal or a longer term hold. If the former, I wouldn't consider it an appropriate first time play.

FWIW 

sarajh

I'd have to side with Stuart on this one.

Any financial transaction that begins from a position summarised as "pretty maxed for serviceability" is unlikely to end well, IMHO. The question here is not whether you can increase your borrowings, but whether you should.

Remember, most pundits are talking a further .50% on interest rates this financial year in addition to the .25% the RBA is expected to announce next week.

The other issue for lenders is the point at which the line is crossed from residential lending to defacto commercial finance. You'll find that some draw the line more conservatively than others.

Trakka,

The lender doesn't ask about "liabilities in your name", they ask about "your liabilities". If you have obligations that, however constructed, will come to you should the proverbial hit the fan, you should declare them:

(a) so you're not up for fraud; and
(b) so you don't borrow more than you can reasonably afford.

There is no magic pudding.

All,

I would strongly recommend forum members have a look at the 4 Corners story. It is not a question of "if" the sub-prime issue in the US will affect the Oz market – it already has. Investors here have benefited from the globalisation of credit markets in that has allowed the second tier and securitised lenders to push the price of borrowings down and to drag the major Bank's along for the ride. The re-pricing of credit globally (driven out of the US sub-prime issue) is putting the squeeze on both the availability and cost of credit which, over the medium term, will increase borrowing costs.

By way of example, Banks have been able to get wholesale funds (which they, in turn, lend to the rest of us) and about .10% over the official cash rate. Last week, the 90 day bill rate was a whopping .50% over the cash rate. When the cost of the raw materials go up, the Bank's will pass it on by hook or by crook.

As far as investors go, I'll make the call that Lo Doc loans will permanently reprice at something like .50% above where they are now, as the international appetite for that business is gone for the foreseeable future.

Finally, if you don't think the contagion can spread outside of the US, take a butchers hook at what is happening to Northern Rock in the UK…..   http://business.scotsman.com/index.cfm?id=1485112007

FIrst thing would be to review the docs RAMs sent you (contract, letters of offer, post settlement stuff or whatever). If they say variable, rather than fixed, methinks you might have a problem.

Always pays to read the gear, though many of us don't.

Otherwise I think you're in to a he-said-she-said exercise with your broker and given where RAMs are at the moment I don't think they will be keen to hand over cash or deal on rate.

If you want to go the broker, check which (if any) disupute resolution scheme they are with and prepare your complaint.

http://www.creditombudsman.com.au/