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The battle to take control of Wizard Home Loans, as reported a few weeks ago by Marquette Turner, is over. Despite expectations that National Australia Bank would take control of the brand and franchise network, the race has been won by Aussie Home Loans.

GE Money has offloaded its Australia and New Zealand mortgage offshoot for an undisclosed amount, but it is likely to be considerably less than the $400 million AUD it paid for it, given the drastic changes in the economic climate.

As part of the deal, the Commonwealth Bank of Australia (CBA) will sell its 33% ownership of Wizard to Aussie Home Loans, whilst at the same time acquiring up to $4 billion AUD of mortgages originated by Wizard, dealing another blow to NAB’s expansion efforts.

The deal suggests that the non-bank sector still has some life in it yet.

The sale of Wizard to Aussie Home Loans is expected to be completed by the end of February 2009, around the same time that CBA will take hold of the first $2 billion AUD of loans by the end of February 2009. CBA remains in discussions with GE Money over acquiring the additional $2 billion of loans.

Simon Turner

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AUSTRALIA has one of the least affordable housing markets in the English-speaking world and it is not just hurting young people wanting to buy their first home, new research shows.

The AMP-NATSEM (The National Centre for Social and Economic Modelling) report – released today – reveals the dream of home ownership is fading for many people.

House prices have jumped 400 per cent between 1986 and 2007 while income has risen just 120 per cent.

The report – Wherever I lay my debt, that’s my home – compares the 1995-1996 housing situation to the latest available data from 2005-2006.

Disposable income

It showed households needed 7.5 times their annual disposable income to buy a typical house in 2006, up 53 per cent from 1996 when households needed five times their disposable salary.

“Buying a home has always been a great Australian dream but it is fast becoming out of reach for many,” managing director of AMP Financial Services, Craig Meller said.

“Even those who may have been in the housing market for an extended period are likely to be feeling the strain.”

State by state

NSW is the country’s least affordable state, with homes costing 8.3 times annual disposable income – up almost 40 per cent on 1996 figures – while the Northern Territory is relatively cheap at five times disposable income.

Western Australia isn’t far behind NSW at 7.45 times annual disposable income after a 63 per cent surge in 10 years, while Tasmania saw the biggest jump, up 65 per cent to 6.1 times annual disposable income.

Compared with other English speaking industrialised countries, Australia has one of the least affordable housing markets with nearly 90 per cent of areas surveyed considered severely unaffordable.

Western Australia’s Mandurah is one of the most unaffordable places surveyed, ranked sixth behind centres such as Los Angeles and San Diego, in the US.

Queensland’s Sunshine Coast is ranked seventh least unaffordable while the Gold Coast and Sydney both ranked 11th.

Young and old

But it is not only the younger generation which is suffering from crippling housing affordability.

The report shows that older generations are taking more debt into retirement with more than twice as many people aged over 60 still paying off a mortgage compared with the same age group in 1995-96.

This group also experienced the biggest jump in housing stress which almost doubled to 9.5 per cent in 2006 from 5.3 per cent in 1996.

Outright home ownership has also dropped during the past decade to 34.3 per cent from 42.9 per cent and most notably in the 45- to 59-year age bracket to 35.8 per cent from 54.4 per cent.

The report found that in 2006 only one in 20 Generation Y households (15-29 years) own a home.
They also have the highest levels of housing stress, at 35.3 per cent.

Among Generation X households (30-44 years) housing stress accounted for 31.8 per cent, compared with 18.8 per cent of baby boomers (45-59 years).

Recent first home buyers, understandably, are the most vulnerable to housing stress, being the group with lowest incomes and faced with the highest house prices, putting 62 per cent in housing stress.

“This report clearly confirms what everyone has been saying about the booming housing market – more needs to be done before the great Australian dream of home ownership becomes unattainable for too many,” NATSEM director, and co-author of the report, Professor Ann Harding said.

Home loans are likely to become even harder to get because analysts underestimated Australia’s reliance on the now-shaky securitised mortgage market, and business borrowers could be foremost among those feeling the mortgage squeeze.

Around 13% of Australian home loans were security backed – shorthand for mortgages packaged together and sold on the sharemarket – in late 2007, according to the State of Play: the Australian Mortgage Industry report by The Sheet and

The market buyers for securitised mortgages have all but disappeared since the US sub-prime crisis triggered a global credit squeeze.

And that, according to The Sheet’s Ian Rogers, means Australia could now be left with a $23 billion dollar gap in mortgage funding.

“There is an enormous supply shock coming through in the home loan market,” Rogers says. “A whole list of lenders who were the most dynamic force in recent years are now doing a lot less lending and some have disappeared.”

It is non-bank lenders that are most involved in securitised mortgages that have felt the pinch, with RAMS and Mobius disappearing and the likes of Bluestone Group, Liberty Financial and Heritage Building Society winding back their lending.

For borrowers, Rogers says, the upshot is that the tighter lending conditions banks have applied in recent months are likely to continue or get even worse.

“Tighter lending conditions are something people will have to get used to,” Rogers says. “No deposit loans will be practically impossible to get. Low deposit and low doc loans will be harder to get and more expensive, and there will be fewer choices of provider.”

And the squeeze could hit business owners the hardest. The higher amount of the average mortgage from non-bank lenders – $300,000 vs $220,000 overall average – suggests they may have been used as de-facto business loans, Rogers says.

“The average size of loans from these non-conforming lenders was well above average and I’m sure they were really business loans or jumbo investment loans people that people were accessing because they were easier to get,” he says.

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