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Home borrowers 'may need 20% deposit'

Discussion in 'Finance & Banking' started by Simon Hampel, 18th Jul, 2007.

  1. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Yet more economists feeling the need to screw around with interventionist attitudes. :(

    From news.com.au:

    Home borrowers 'may need 20% deposit' | NEWS.com.au Business

     
  2. crc_error

    crc_error The Rule of 72

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    I think if you can't afford 20% deposit for a house, you shouldn't be buying it..

    Its the banks who give away money to easily which contribute to these problems, but in saying that I agree that the people are ultimately responsible for decisions made, not the banks...
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    No no no - that's not the issue at all. I can easily afford to pay 20% deposit ... heck, I can afford to pay cash for a house, but I'd rather gear to 90%+ (if it makes sense to do so) and use my other capital for something else rather than tying it all up in that one asset.

    If I want to gear above 80%, that's MY decision based on my own strategies - I don't want to be dictated to by a government that feels I need protection from myself.
     
  4. crc_error

    crc_error The Rule of 72

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    yes, that may be your situation, but there are many 'mums and dads' working as fork lift drivers who don't have any understanding of finances, so the banks should be a little more responsible with such people, rather then just giving out money... this is where there should be a 'better' consideration of someones situation rather than a broker who is driven by commission and giving people more than they can afford.
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    So are you advocating legislation which arbitrarily limits EVERYONE to 80% LVR on real estate ?
     
  6. crc_error

    crc_error The Rule of 72

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    No, but there needs to be some sort of responsibility also placed on the bank... to discourage them from writing rogue loans.

    For example, mortgage insurance should also protect the borrower to a certain extent, not just the bank.. This way it will discourage them from writing high-risk loans.. ones they know have a high chance of causing the borrower distress.
     
  7. tailcat

    tailcat Well-Known Member

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    No, you do not have to put the responsibility on anybody.

    Simply remove the bank's 100% guarantee of getting its money back, especially for credit cards.

    Tailcat
     
  8. crc_error

    crc_error The Rule of 72

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    exactly! good point.. but this is what I'm trying to suggest. If there is a element of risk to the bank, they will think twice before they lend the money. At the moment, there is to much protection for the bank, eg mortgage insurance etc, so the bank can't loose. Then they can sue the person etc etc and they will eventually get their money with interest! Its actually good for a bank to get defaults, cause when you default on your loan, they charge you a surcharge of 2% on top of the current interest rate..
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I think you'll find that the majority of people who default on loans are in the process of going bankrupt - which means the bank will get none of its money back (other than what it can extract from selling off the assets).
     
  10. Nigel Ward

    Nigel Ward Team InvestEd

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    With respect, that's nonsense.

    I've acted for banks for a decade and the one thing banks are obsessed about is getting their money back. They definitely do not want borrowers to default. Banks do not want to be kicking people out of their homes or running people's businesses to...they're in the business of lending money not being a landlord.

    It's true that there's fierce competition in retail and institutional banking but I don't think credit practices have been relaxed to any great degree since deregulation back in the eighties.

    I really think any proposal for the government to mandate a minimum deposit level rather than the financiers themselves then IMHO that's a massive step backwards 20 odd years. What next? No loans for unmarried women? No loans for self-employed people? Governments have no business in business.

    Government interference like this suggestion is entirely unwarranted. People need to be responsible for their own financial decisions. It ain't rocket science, the disclosure required under the Consumer Credit Code is extensive. Your repayments are going to be $x per month...do you have $x per month spare? How will you cope if you lose your job etc?

    There are already hardship provisions in the UCCC for borrowers to negotiate with their bank...

    Sheesh.

    N.
     
    Last edited: 18th Jul, 2007
  11. Glebe

    Glebe Well-Known Member

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    Yeah I borrowed at 15%, out of choice. If I was mandated 20% I would have had to sell more MF's. That would've sucked.

    Like Nigel and Sim have said, I don't believe it's the government's role to interfere with the marketplace here.

    Buyers and sellers of debt need to work it out themselves.

    Bruce Baird needs to read more Milton Friedman and Frederick von Hayek..
     
  12. coopranos

    coopranos Well-Known Member

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    This whole idea of putting the blame of individuals stupidity onto banks and other lenders is absolutely ridiculous - its as bad as blaming mcdonalds for the obesity epidemic.
    People make their own decisions. The banks are a business like any other their aim is to make money. If someone is too stupid to say "no" to their 3rd credit when their other 2 are maxed out, then their wage deserves to go to the bank as interest. People need to stop shirking responsibility for their own failures and poor judgment. At the end of the day if you are a failure you only have yourself to blame, and if you succeed you only have yourself to pat on the back.