Senate Economics Legislation Committee, , 3:23:39 to 3:28:26
Discussion on the prevalence of negative equity among borrowers, specifically those in government housing deposit schemes.
Topics: Infrastructure, Government spending
Speakers: Dr Brad Jones, Senator Andrew Bragg, Michele Bullock, Senator Lisa Darmanin
Senator Bragg.
Uh in your latest uh financial stability review, the bank said that there would likely be more people in high LVR situations to be in negative equities. What sort of assessments have you done about people who might be in negative equity at the moment? I know you noted it in brief in your opening statement. Uh particularly in view of the uh 100,000 people who've taken out 95% loans under the government scheme in the past 12 months.
Um so I'll make a couple of comments and then I'm going to pass to Brad. Um the first thing I would note is that negative equity of itself isn't actually a problem unless people for um difficult reasons have to have to sell. So that's that's the first point I'd make. Second point I would make is that um, and Brad can talk you through how we do how we do this, but basically our estimates are that people in negative equity at the moment are well under one percent. It's it's it's uh very very small. Um and we have done some scenario analysis, which I'll let Brad talk to about what would happen under different scenarios of home price uh declines.
That thanks, Governor. At a system wide level, uh we have run uh a couple of scenarios, one where house prices uh the decline in house prices matched the previous uh historical sort of peak declines of around 8%, and in that sort of a scenario, the share of uh borrowers and negative equity is still very, very small, uh, not far above that sort of one to two percent range. We've also had a look at a much more severe scenario, a 20% decline in house prices, and in that context, uh our estimates suggest that around 5% of borrowers would be in negative equity, and that largely reflects that in Australia most borrowers put 20% down. So there's a lot of cushion, equity cushion, if you like, um, in the Australian financial system, re uh falling house prices. For the particular scheme that you've mentioned, Senator, we can't observe directly at the moment the share of those particular borrowers uh because those loans haven't entered our securitisation database yet. They will in time. It typically takes around 18 months for new loans to enter our database. At that point, we will have quite granular data on loan performance. Uh, but we have uh conducted liaison with the banks and with housing Australia. Their readout is that there's nothing particularly uh uh unusual about stress in that segment of borrowers. We have also run a simulation that's based on a lot of assumptions because we can't directly observe uh what's going on with these borrowers, but under those simulations, we've our estimate would be around four to five percent of the borrowers under the new um deposit guarantee scheme would likely be in negative equity, and the part of the reason that that that number's not higher is because the house price declines across Australia in suburbs where first home buyers are most active, has actually been less pronounced than in more affluent, uh more expensive areas.
Yeah, so you you're effectively saying that uh there's been five percent of people in the scheme, potentially that's the proxy you're comfortable with. Uh that would be uh five thousand people in the last year who've joined the scheme uh on that basis.
Our numbers uh suggest that since the October revisions where there are some adjustments made to that program uh around 55,000 new entrants into that program have uh have occurred since since October. I haven't got the data before that, but the scheme was running at about 10,000 new entrants per month. So that the number you've mentioned doesn't sound wildly out of line.
Yeah, so you think it's about 5,000 people across Australia in a 95% scheme that are in negative equity as at today. Okay, that's interesting. Um what about the impact of the taxes? Because I think a lot of people will look at it and say, well, um, I took out a 95% loan because the government effectively proposed that I should the taxes and other things are pushed down the value of my house.