Mortgage pain is buyer's gain

In suburbs around the country a growing number of households are being forced to sell their homes as the economic slowdown puts mortgage repayments beyond their reach.

Mortgagee repossessions in New South Wales and Victoria are on track to reach their highest levels since the depths of the global financial crisis, Supreme Court filings suggest. In the nine months to March this year repossessions in NSW had risen to 2955, while in the 10 months to April 1696 repossessions were lodged with the state’s Supreme Court.

National repossession figures are hard to come by. Still, the trend is in line with other evidence that the property market is heading lower in most capitals even as interest rates fall.

But one person’s pain is another’s gain with bargain prices on offer as banks look to offload repossessed homes, often at prices below market value.

It’s the silver lining for borrowers such as Queensland-based couple Scott and Carmen, who earlier this year purchased a mortgagee repossession in Ipswich.

“We’ve probably saved anywhere from $30,000 to $40,000,” Scott told A Current Affair.

While mortgagee investors could be seen as property vultures, it’s purely commercial for Paul Flynn, who buys and sells properties forced onto the market.

“There are more mortgagee sales on the market than I’ve experienced in 25 years of real estate,” he said.

“I’m not dealing with the people who are losing their homes; I’m more dealing with the banks that are selling them.”

The lack of national data on mortgagee repossessions, however, makes it difficult to know the true state of the national market, according to John Kovacs, managing director of NMD Data, which compiles listings of distressed properties.

The major banks are reluctant to advertise properties as “mortgagee repossessions” because by doing so typically results in lower prices from the resulting sale, he said.

“In the December quarter we saw quite a dramatic increase. In Queensland we saw an increase of mortgagee repossessions by 48 percent; in New South Wales we saw an increase of 41 percent and in Victoria 37 percent,” he said.

“The more you have in a given area the quicker property prices start to fall.”

Many of the mortgagee sales are in good locations, according to Nine’s finance expert Ross Greenwood.

“So you may very well get the double whammy; the cheap location plus also you might get the distressed seller,” he told ACA.

Most lenders will try and work with borrowers facing financial hardship in a bid to help them keep their house, he said.

“It’s only in a worst-case scenario that someone will have the sheriffs come around and throw them out of the house.”

Not all forced sales are bargains, either, according to Kovacs.

“Don’t assume that because it’s mortgagee repossession that it’s automatically a good-value property. You must still do your research.”

 

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A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

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