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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.


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BFCSA: There is no control over INTEREST ONLY LOANS. What a banking CIRCUS

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Property slump could push the economy into recession, top economists warn

Australian Financial Review Feb 9 2018 6:18 PM

Duncan Hughes


Falling property prices in Sydney and Melbourne could cause the nation's wealthiest consumers to cut back sharply on spending and drive the economy into recession, according to leading economists.

Belt tightening by the biggest spenders and most highly geared property investors could have the "unintended consequence" of seriously squeezing retail spending, their research finds.

Growth in consumer spending – which accounts for nearly 60 per cent of gross domestic product – could fall by half over the next 12 months, weakening economic growth unless offset by major capital expenditure by governments and business, economists warn.

Daniel Blake, chief economist for investment bank Morgan Stanley, said: "A slowing housing market could force reassessment of gearing and lead to a household balance sheet recession. This is the most likely cause of a shock to the economy."

A 'balance sheet' recession happens when high levels of private sector debt cause individuals to focus on savings by paying down debt rather than spending or investing, causing economic growth to slow or decline.

Reserve Bank of Australia governor Philip Lowe "continues to watch household balance sheets carefully as there are risks there".

The nation's debt to income ratio has hit 200 per cent and mortgage debt has soared from 86 per cent to 92 per cent of household debt in the 10 years to 2017.

Mr Lowe, who was speaking at an economic forum hosted by Citi, said the recent macroprudential clampdown was motivated by concerns about household, rather than lenders' balance sheets.

"Our concern … was the day might come, when faced with bad economic news, households feel they have borrowed too much and respond by cutting their spending sharply, damaging the overall economy."

Martin North, principal of Digital Finance Analytics, an independent consultancy, said household consumption has been a key driver of economic growth for the past five years.

Mr North said: "There is a tendency to think the more affluent have plenty of capacity to repay and can take on more risk. But quite a few of these wealthiest households are up against it – even with record low interest rates."

The bulk of investment properties are held by the nation's wealthiest, many of whom are facing higher repayments as interest-only mortgage payments are replaced with higher cost principal and interest.

"The rich have a bigger lifestyle, significantly more leverage, bigger properties and are not used to trimming back. It is going to be an interesting ride," he said.

Mr Blake said: "The pivotal debate for 2018 will be whether increased capital expenditure – by governments and private sector – can offset the headwind to consumption from falling real incomes, a downturn in house prices and the impact that will have on consumption growth in 2018."

The nation's top earners have used rising house prices to unlock equity in their existing property as a deposit for the next and made the most of negative equity tax deductions that are highest for those on highest marginal rates of personal tax income.

Brendan Coates, a fellow at the Grattan Institute, a public policy think tank, said: "We should be more concerned that higher debts could prompt a rapid fall in household spending in the event of a [housing] downturn."

The nation's savings took another knock this week as global markets plunged, lowering the value of other assets such as shares and superannuation, and making home owners feel poorer.

Recent analysis by the Reserve Bank of Australia shows that households with higher debts are more likely to reduce spending if their income falls.

Most of the recent increase in the nation's debt is accounted for by the wealthiest 20 per cent and is roughly split between increased borrowing for owner-occupied housing and investment properties.

Recent research by the Grattan Institute shows that an interest rate rise of just two percentage points from current record lows would take up more of a household's income in mortgage repayments than for any time in the past 20 years.

One-third of borrowers have either no accrued buffer to absorb rising costs or falling income, or a buffer of less than one percent.

But estimates of the effect of falling property prices on wealthy Australians vary widely.

One recent RBA paper estimated that each dollar of housing wealth lost reduced household consumption by about a quarter of one per cent, or a tenth of a percentage point fall in GDP for each 10 per cent fall in house prices. That's because households with higher debts are more likely to reduce spending if their incomes fall.

Other analysis shows the "wealth effect" could be ten times as large.

The RBA said it welcomed continued tight controls on interest-only loans.



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