Genworth International Mortgage Trends Report 2011 media briefing presentation

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International Mortgage Trends ReportMedia Briefing

June 2011

INTERNATIONAL MORTGAGE TRENDS REPORT – JUNE 2011 produced by GENWORTH • CONFIDENTIAL • 2

Agenda• Why and how was the International Mortgage Trends Report (IMTR) developed?

• Australian overview

• The regulatory background

• Homebuyer sentiment

• Attitudes to debt

• Mortgage repayments and mortgage stress

• First homebuyers (FHBs) and affordability

• Culture and economic conditions shape mortgage markets

• Across all surveyed countries, affordability was an issue for potential FHBs

• Some conclusions

Note: All charts are from IMTR and based on RFi research conducted on behalf of Genworth in March 2011


Why was the IMTR developed and what does it do?

• Genworth is a global company with a presence in 25 countries worldwide

• To provide a detailed perspective on individual mortgage markets while looking at the broader trends that affect the market globally

• Driving Genworth’s global thought leadership

• Unique cultural and socio demographic perspectives.


How was the IMTR research conducted?

• Commissioned by Genworth and conducted by independent research firm RFi

• Eight countries were involved : Australia, Canada, India, Ireland, Italy, Mexico, the United Kingdom (UK) and the United States (US). A minimum of 1000 respondents from each country, 1500 from both India and the US

• Respondents either had a current mortgage on a property or were looking to purchase their first home with a mortgage in the 12 months following the survey

• Quotas on age, gender and location to ensure responses were representative of the mortgage-holding population

• Surveys conducted in March 2011

• Online panels in each country, with CATI fieldwork conducted in Mexico and India.


Australian overview

Source (GDP and unemployment): IMF: World Economic Outlook, April 2011Source (cash rate): Central bank of each survey country, correct as of May 2011


• Basel III likely to be introduced across the globe, will require banks to hold a higher proportion of liquid assets and to make greater provisions for adverse economic conditions

• New banking ‘fairness’ regulations introduced in several countries, including:

– UK: The treating customers fairly (TCF) principles, introduced in 2007, ensure that borrowers are fully informed of the implications of financial service products

– US: reforms introduced in 2010, more strenuous requirements for banks determining whether borrowers can repay their mortgage

– Australia: National Consumer Credit Protection Act (NCCP) introduced in 2010, aims to promote responsible lending practices, as well as the Labor Government’s ‘Fairer Simpler Banking’ reforms.

• New schemes to help borrowers repay debt

– US: Home Affordable Modification Program (HAMP), Hope Now (industry alliance)

– UK: Home Owners Mortgage Support Scheme (HMS), mortgage rescue scheme.

• Ireland, the UK and Italy have all adopted austerity budgets, with stimulus in Australia and the US.

The regulatory background

Regulation restricts access to credit but helps stressed borrowers


Consumers are more worried about personal finances than their countries’ economies

• Australian respondents were more positive about their national economy than average, with 37% positive compared to an average of 30%

• Austerity measures in Ireland, the UK and Italy are likely to be adversely affecting homebuyer confidence in these countries.

Homebuyer sentiment


Consumers are more worried about personal finances than their countries’ economies

• Overall, respondents were less likely to be positive about their finances than about the economy (25% compared to 30%)

• Australia was no exception, with only 23% unconcerned about personal finances.

Homebuyer sentiment


For people who were worried about their personal finances, a ‘rise in the cost of living’ was the most likely cause

• Following four interest rate rises in 2010, 72% of Australians said interest rates were a concern

• Unrest in the Middle East has made petrol prices a worry across most countries.

Homebuyer sentiment


Divide between East and West on comfort with debt and level of indebtedness

• 39% of surveyed Australians used over half of their income to service debts. However, more than one in three said they would be comfortable borrowing more than 80% of their home’s value, the highest proportion of any country surveyed.

Attitudes to debt


Cost of living places strain on borrowers, but the majority easily meet repayments

• Many countries show a desire to pay off debt faster than required – in India and Australia an average of more than 40% of borrowers surveyed were overpaying their mortgages.

Mortgage repayments and mortgage stress


Cost of living places strain on borrowers, but the majority easily meet repayments

• Australian respondents struggling to meet repayments were most likely to cite ‘reduced income’ as the reason, but almost one in three nominated ‘increase of mortgage repayment’, following four rate increases over 2010.



Recent FHBs no more likely than average to struggle with mortgage repayments

• The Streets Ahead report found Australian FHBs more sensitive to rates than average. With rates on hold for the past six months, Australian FHBs have become less concerned

• Irish respondents were most likely to have struggled in the past year, and one of the most likely to expect to struggle in the coming year.



Even amongst potential FHB respondents who don’t yet have a mortgage, levels of debt are high

• Australian potential FHBs were among the most indebted, with one in five spending more than 50% of their after tax income servicing debt, behind only the US and Canada

• Potential FHBs from Mexico and India were much less indebted.

FHBs and affordability


Potential FHBs in India and Mexico stay home and out of debt

• 41% of potential FHBs in Australia were already living away from the family home, paying rent and incurring living costs, which increases their level of debt and impairs their ability to save for a home.



Affordability concerns keep FHBs out of the market for longer

• Australia and Mexico are the only two countries where the average FHB age has increased at an above average rate in the past decade, by 7% and 18% respectively compared to a long term average of 5%.



Affordability permeates the belief that now is a good time to buy

• Around 40% of Australian respondents believed it was a good time to buy a home, in line with the average

• Countries which had seen falls in property prices, such as Ireland, the US and the UK, were most likely to believe it is a good time to buy.



Affordability permeates the belief that now is a good time to buy

• Respondents in countries which had seen falls in property prices, such as Ireland, the US and the UK, were most likely to agree ‘it is a good time to buy’ because of low prices

• In Australia, the potential for prices to rise was an incentive.



Lenders mortgage insurance helps borrowers into their first home sooner

Respondents were given the following description of LMI

“Borrowers wanting to take out a home loan valued at close to the property’s potential selling price are often required to purchase Lenders Mortgage Insurance. This protects the lender against the risk of default and therefore provides borrowers with the opportunity to purchase property with smaller deposits.”

Lenders mortgage insurance


• Australian, European and North American respondents were more comfortable borrowing than respondents from India and Mexico

• Ireland, the US, the UK and Canada have the highest levels of debt, and Australian and Irish respondents had the highest levels of mortgage debt

• But higher levels of debt don’t mean borrowers are struggling. In fact, in Australia and Canada most respondents are easily repaying their mortgage debts and in many cases overpaying

• Aversion to debt can make it difficult to buy as affordability decreases.

• Ireland, the UK and Italy are all facing government austerity measures, which have rocked confidence in the economy and the housing market

• Australia and the US have had economic stimuli applied, but their levels of confidence differ greatly due to the relative performance of the housing markets in the two countries

• The US is still displaying caution about the possibility of house price declines.

Culture and economic conditions shape mortgage markets

Cultural differences Economic conditions


Across all surveyed countries, affordability was an issue for potential FHBs

Addressing through product Addressing through government intervention

Approaches include different housing and mortgage products and product such as mortgage insurance.

Some governments have introduced incentives to help FHBs afford their own homes sooner.

Housing products

In India, homebuyers generally buy homes that are still under construction.

Mortgage products

India: products that lengthen mortgage terms when rates increase so repayments don’t change

Canada: longer loan terms.

Australia: First Home Owner’s Grant (FHOG) - a cash incentive of $7000 offered to FHBs

Canada: FHBs can access retirement savings for deposit, RMBS scheme.

Schemes

Limitations

Concerns that in the long-term they actually help drive up house prices

In Australia the FHOB saw the proportion of FHBs in the market increase steeply, but the average FHB loan size also increased.


• In analysing these eight markets it has become obvious that there is no clear and simple answer to the problem of housing affordability, and initiatives need to be continually developed to meet changing conditions

• Respondents in many countries felt positive about economic recovery and saw clear opportunities in the property market for those who could afford to buy. Two in five respondents across all surveyed countries agreed that now was a good time to buy a home, the key for lenders and governments will be in making this a reality. If this can be achieved then there is good cause for optimism.

Some conclusions

Optimistic outlook if affordability is addressed


Disclaimer

The information in this private briefing is confidential and not for distribution. The material is current as at the date of this presentation. The information is subject to change without notice and Genworth Financial is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Genworth Financial retains ownership of the content of the presentation and permission should be sought from Genworth Financial for use of this presentation by third parties. Genworth Financial does not take responsibility for any third party reliance on the information in this presentation. Genworth Financial intends by this notice to exclude liability for the information in this presentation. The information may contain material provided directly by third parties, Genworth Financial accepts no responsibility for the accuracy or completeness of any such material.

Genworth International Mortgage Trends Report 2011 media briefing presentation

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Transcript of Genworth International Mortgage Trends Report 2011 media briefing presentation