Here's a scenario,

Bank discovers (however it happens) after they've approved a loan but before they hand over the cash, that the property or properties is now worth less then they thought…perhaps even less than the loan amount.

They proceed with the loan.

Borrower falls over, now owing more than the property is worth and the bank takes them to the cleaners.

Of course, No-One In This Forum would run to their laywers or A Current Affair screaming about banks lending inappropriately, would they? Perhaps the NAB (and I can't believe I'm defending that particular group of cardigan-wearers) felt it was a prudent decision.

brookelea…the key question for your sister in law is, "if the properties are worth what the bank thinks they are worth, is this still a deal I am comfortable with". If not, they did her a favour. If yes, another lender will grab it with both hands.

Let me say at the outset, home affordability is at historical lows, so let's lay of the young fella. We older types can bang on about how tough it was in our day but it is materially and objectively more difficult today.

http://www.rba.gov.au/ChartPack/output_expenditure_activity_fincon.pdf

As regards the "Housing Rocks" debate:

If you owned tulip bulbs in the 17th century, it would have been *really cool* if a single bulb was really worth tens of thousands of today's dollars rather than best seen as a nice present for your mother

If you owned tech stocks in early 2000, it would have been *really cool* if the incredible price:earnings multiples that were in play truly reflected a "new" economy, not just a herd mentality.

If you own property, it would be *really cool* if the value of all houses went up all the time and were not a function of accumulation of personal debt at the expense of production and a skewed tax system, both of which can change.

This does not mean that residential property is not a good investment (generally it is, as it commerical property, equities et al). It just means that it is worth taking the time to understand the "what ifs" and ensure you don't become one of the people I am obliged to deal with on a regular basis who "bought the dream", ignored the risk/realities and are facing bankruptcy.

There is no Magic Pudding.

C'mon…just cop to the fact that at the end of the day that The Secret, its predecessors and successors, simply require a belief in magic.  This will save the embarrassment of the faux scientific claptrap that wouldn't past muster ina year 8 physics class.

Effective investment is about mastering facts and there are no shortcuts.

Pay the $25 when someone can prove the Law of Attraction is as reliable of the Law of Gravity (funny how gravity works whether you've read the instructions or not…kind of what makes it a law, I guess).

Useful life rules:  Generally speaking, (a) people who spend their lives going to "seminars and courses"  run by (b) other people who make (c) money exclusively by taking (c) from (a), are very poor judges of what works. This is because the Incredibly Significant Life Changing Seminar  is invariably (d) the one they've just attended and will in due course be (e) the one they're going to attend just haven't found got the brochure/e-mail about  yet.
 
The long spiritual journey is such because you are usually walking around in circles.

And, finally, the fact that it would be Really Really Cool for a particular thing to be true, is not support for the proposition that it is.

There is a very obvious difference between a motivated and rational approach to the pursuit of your goals and bunk and hoakum that is the basis of sucker bets like "The Secret". The Secret, its predecessors and followers are the usual far-fetched "believe in magic and Wish Very Very Hard so that good things will happen to and for you" rubbish that has been the basis for money-making scams since one cave dweller convinced another to trade his nice warm mammoth skin for a magic stick that would attract good looking cave-chicks.

Today is the same  gear, just better marketing.

You can buy a lucky horseshoe, stack your house with chrystals, invest in the gauranteed System To Beat The Casino or pray to the god or gods of your choice to deliver you a fortune or help you win the Masters OR you can research the market, know your stuff, assess the risks and returns and get on with it.

The "won't this push house prices up" argument trotted out above applies equally to any innovation that allows people to borrow more or buy more. Mortgage insurance, improved serviceability ratios, inclusion of rental income, high LVR loans, Lo Doc, No Doc, guarantees, cross-collateralisation and anything that pushes an interest rate down rather than up – under this logic- drives house prices north

The irony is that this very forum is designed to assist people to do just that.

Therefore, this forum is driving house prices up.

It is therefore in everyone's interest that we shut it down

It’s been interesting watching the discussion around the concept evolve, but I think the broader point is being missed (not altogether suprising given this is an investment forum[biggrin]).

This sort of product (currently being funded by Govts in SA, WA, the UK and,the NZ govt has now come out encouraing lenders to get something similar up and running) is not designed for people who see their PPOR as an investment.

Is is clearly designed for -and will no doubt be used- by:

*first homebuyers who simply can’t afford the price of entry level housing without someone else stumping up some cash
*first homebuyers who can afford their first home but only by placing themselves under big pressure AND being prepared to start out in life with a debt equal or greater to the purchase price of their home (personally, I couldn’t face that now never mind when I was starting out)
*first homebuyers who are prepared to give up potential cap gain in order to buy their second house first!
*upgraders who happy to give a % of a potential future gain for an actual extra bedroom[happy3]
*savvy investors who figure equities are a better play than property and figure they can free up some income from the non tax-deductible debt to leverage into,say, a margin loan.
*recent cash-poor divorcees who want to stay in a similar house in a similar place and need a partner to put in what the lawyers took out.
*couples looking have kids and thereby lose an income, need to reduce payments temporarily and figure the RE market is stagnant so why not take a punt.

It clearly aint for everyone but for some is the best thing since a baker took a knife to a loaf.

And lets remember, all the enthusiatic talk about rising property prices (infering anyone who takes on of these things is missing out on a huge gain) misses the regrettable reality of Australian property pricing. Yes, on average, the market moves up in high single digits. Pockets move up and down in big chunks, so potential future gains are just that.

In most loans, if you do your dough the Bank hs still made theirs. At least here, the extent of their income is predicated on the extent of your gain.

FWIW

If the Big C are such a poor outfit, why do they keep getting the lion’s share of business through the broker market? I was looking at some numbers the other day which seemed to suggest they remain at or close to the top of the tree in volume terms….

…or is everyone prepared to support poor service if the rate is right?