Genworth International Mortgage Trends Report 2011

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The inaugural Genworth International Mortgage Trends report with insight into mortage markets in 8 countries across 4 continents - Australia, Canada, India, Ireland, Italy, Mexico, the UK and the US.

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Genworth International Mortgage Trends Report 2011

  1. 1. June 2011 I First EditionGenworth InternationalMortgage Trends ReportGF90336 05/11
  2. 2. Table of contentsWelcome to the 2011 Genworth International Mortgage Trends Report . . . . . . . 2Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Key highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Country profiles The Australian market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 The Canadian market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 The Indian market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 The Irish market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 The Italian market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 The Mexican market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 The UK market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 The US market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Conclusions and lessons learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Glossary of terms and abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Tables and charts index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
  3. 3. Genworth International Mortgage Trends Report I2Welcome to the 2011 Genworth InternationalMortgage Trends ReportAs the leading global provider of mortgage insurance, These survey results do however need to be viewedGenworth understands the need for lenders and through the lens of change . We have seen a great dealother mortgage industry stakeholders to have timely, of housing and lending market instability over the lastcomparative and deep insights into borrowing trends few years across the globe with many markets aroundand mortgage market behaviour, particularly in the the world falling into recession .recent times of financial and economic uncertainty This has prompted renewed focus on lending regulationin many economies . and economic stimulus globally as governments look toWith a presence in no less than 25 countries around address certain economic challenges head-on with mixedthe world, Genworth is ideally positioned to provide a results . Generally, governments globally are focusingdetailed perspective on the operation of the mortgage much of their immediate attention on responsible lendingmarkets in individual countries while at the same time practices and borrowers’ ability to repay their debt .having the benefit of a big picture view of the broader The findings reveal many borrowers are worried abouttrends that can be seen to affect markets globally . their future financial situation and over one in five (22%)To this end, Genworth recently commissioned the of those surveyed struggled to meet their mortgageInternational Mortgage Trends Report, a survey across repayments over the past year . This contrasts with theeight countries aimed at gaining local market insights and large majority of borrowers who easily met their mortgagedriving Genworth’s global thought leadership . In addition repayments and the one in four who actually overpaidto economic impacts on mortgage markets, the report their mortgage during that time .also provides unique cultural and socio demographic It is also interesting to see that recent first homebuyersperspectives underpinning observable borrowing who took part in the survey are no more likely than thepatterns in the countries surveyed . average to struggle with mortgage repayments despiteWe hope these findings provide the mortgage industry needing to increase their exposure to debt to enter thein all markets with insights that help identify future property market .opportunities for business growth as well as a deeper Generally, many first homebuyer respondents acrossunderstanding of the challenges that are likely to all eight countries think now is a good time to buy ashape business strategies in the near to medium term . home, largely because in many markets surveyed houseThe results of this first International Mortgage Trends prices have recently dropped . In contrast, in the countriesReport highlight some interesting common trends where we are seeing house price appreciation, many areemerging across all eight countries surveyed . In almost concerned about their ability to enter the market despiteall of the countries surveyed, housing affordability is a desire to .keeping first homebuyers out of the property market . There is no universal answer to the problem of housingThe reasons for affordability problems range from the affordability but it is clear that initiatives need torising costs of living, a fear of interest rate rises, lack of continually be developed to meet changing conditionshousing availability, to high house prices . As a result, and create more opportunity so more people can realisewith the exception of India, the average age of the First their dream of home ownership .Homebuyer is increasing in all countries surveyed .Kevin D . Schneider Jerome T . UptonPresident & Chief Executive Officer Senior Vice President & Chief Operating OfficerGenworth Financial Genworth FinancialU.S. Mortgage Insurance International
  4. 4. 3 I Genworth International Mortgage Trends ReportExecutive summaryWelcome to the inaugural edition of the Genworth International Mortgage Trends Report, a study thatassesses current and aspiring homebuyer attitudes and sentiment in eight markets across four continents .As the leading global mortgage insurance provider, Genworth Financial (Genworth) commissioned asurvey in March 2011 of homebuyers and aspiring first homebuyers (FHBs) around the world in orderto gain local market insight and drive global thought leadership across markets . In total, more than ninethousand respondents were interviewed from Australia, Canada, India, Ireland, Italy, Mexico, the UnitedKingdom (UK) and the United States (US) .Across the countries surveyed, home ownership occupies a central position in the lives and livelihoodsof consumers . Whether it is driven by emotional desire or pragmatic decision-making, home ownershipfosters wealth creation, provides security and facilitates financial stability and is likely to remain criticallyimportant for the long-term .Regulation restricts access to credit western countries . Western countries tended to havebut helps stressed borrowers higher levels of debt, but were also more comfortableIn recent years the sub-prime crisis in the US has exposed taking on debt . Respondents in Mexico and India had athe financial services sector to unprecedented scrutiny, lower tolerance for debt, but also less access to highwhich has resulted in a renewed focus on regulation loan-to-value ratio (LTV) mortgage products .globally . Alongside this regulation, governments have Despite the relative indebtedness of Western economies,used artificial stimuli to ease their way through the most respondents in these countries found it easy to meeteconomic downturn, and subsequently introduced their mortgage repayments over the past year and wereausterity measures to combat deficits . optimistic about meeting repayments in the coming year .Austerity and disasters impact on confidenceGenworth’s commissioned survey of current and future Affordability keeps FHBs out of the market Affordability was a problem for FHB respondents inhomebuyers across eight countries found that adverse almost all of the surveyed countries . For some, this waseconomic conditions have had a major impact on due to high house prices, while for others the high costhomebuyer sentiment . Respondents in Ireland, Italy and of living or fear of interest rate rises posed a barrier . Overthe UK have all faced austerity measures in recent years, the last 40 years, the average age of FHBs has been risingand are subsequently more likely than average to be in all countries except for India, as housing has becomeworried about their countries’ economies . Meanwhile increasingly unaffordable .in Australia, floods and natural disasters have impactedhomebuyer confidence . In analysing these eight markets it has become obvious that there is no clear and simple answer to the problem ofWhile austerity measures and disasters are hurting housing affordability and initiatives need to be continuallyhouseholds, there are some initiatives that are positively developed to meet changing conditions . Going forward,affecting sentiment . The Australian and Canadian respondents in many countries felt positive aboutgovernments are offering incentives to FHBs to help economic recovery and saw clear opportunities in thethem enter the property market, while the Irish and US property market for those who could afford to buy . Twogovernments are offering or have offered tax incentives . in five respondents across all surveys agreed that nowIndebtedness varies significantly but does not was a good time to buy a home . The key for lenders andnecessarily lead to repayment stress governments will be in making this a reality . If this can beEconomic and cultural factors meant that debt levels achieved there is good cause for optimism .were very different across the surveyed respondents in
  5. 5. Genworth International Mortgage Trends Report I4Key country findings • However, two thirds of those surveyed who wouldA focus on the survey results from each country reveal ideally like to buy property now are not in the financialthat there are local nuances that impact homebuyers and position to do so .aspiring homebuyers . Key country take-outs are as follows: The Mexican marketThe Australian market • Mexicans who took part in the survey are relatively• Almost half of all Australian homebuyers surveyed positive about the economy and their personal finances overpay their mortgage • Those who are struggling are worried about• Strong house price growth provides an incentive for unemployment/underemployment, which is impacting investors, but creates a barrier for FHBs on property market participation• In order to own property, Australians are becoming • Housing shortages have resulted in a fall in affordability, increasingly indebted . with the average age of a FHB over the last decade rising to 33 yearsThe Canadian market • Very few Mexican respondents have had trouble• Almost half of all Canadian respondents were positive meeting mortgage repayments, but their outlook is about the outlook for the economy and housing market pessimistic .• Canadian respondents are generally comfortable with higher levels of debt The UK market• Government supports the availability of credit through • UK homebuyers interviewed are pessimistic over the its operation of the Canada Mortgage Bonds (CMB) economy and their personal financial situation program and other government backed securitisation • Despite being more optimistic than average in regards vehicles . to the property market, UK respondents will not actively enter the market in the next 12 monthsThe Indian market • FHB respondents in the UK are increasingly being• Indian homebuyers are generally upbeat about the priced out of the market economy and their personal finances • Eight in ten UK respondents expected no difficulty• However, there are some concerns about high house meeting their repayments over the coming year . prices in Tier one cities after rapid growth in the last 18 to 24 months The US market• As a result, few are looking to buy property in these • More than half of Americans surveyed are nervous larger cities as they feel financially squeezed out, and about how the economy will perform in the coming demand may well shift to Tier two cities year• Moving forward, a combination of mortgage insurance • Nearly two in three feel that now is a good time to buy and product innovation could help new homebuyers a home get into the market sooner . • Two thirds of American respondents feel that mortgage insurance helps them buy a home with a smaller downThe Irish market payment, and sooner• The Irish Government has introduced austerity • The average age at which a borrower is able to measures for the next four years in order to control purchase their first home has increased from 27 .3 years spiraling debt during the 1970s to 31 .6 years in the 2000s .• Irish respondents had a generally negative perspective on the economy and their personal finances, with government measures a clear factor• FHBs are making up an increased share of the mortgage market, following improved affordability .The Italian market• Homebuyer confidence in Italy remains weak, as 55% of Italians surveyed felt negative about their national economy and 46% said they were concerned about their personal financial situation• Housing affordability has improved in the last year due to lower house prices and interest rates
  6. 6. 5 I Genworth International Mortgage Trends ReportKey highlightsThis report examines homebuyer sentiment and attitudes With renewed focus on the ability of borrowers totowards the economy, personal finances, mortgage repay debt, there have also been a number of schemesinsurance and the mortgage and property markets in introduced to help borrowers who are having troubleeach of the eight countries . repaying their mortgage . In the US the government has introduced a number of initiatives including:Regulation restricts access to credit • The Home Affordable Modification Program (HAMP),but helps stressed borrowers which allows eligible borrowers to modify the terms ofThe sub-prime crisis exposed the financial services sector their loan if the value of their property has declinedto unprecedented scrutiny, which resulted in a renewed • Hope Now, an industry alliance promoted by thefocus on regulation globally . Alongside this regulation, government to help borrowers stay in their homes .governments have used artificial stimuli to ease theirway through the economic downturn, and subsequently In the UK, the Government offers:introduced austerity measures to combat deficits . • The Home Owners Mortgage Support Scheme (HMS), which allows borrowers to defer payments for up toThe collapse of several high profile banks in the US, the two yearsUK and Europe damaged consumer confidence in the • The Mortgage Rescue Scheme, which provides financialbanking system, and led to calls for reform . Addressing help to borrowers in ‘priority need’ .the stability of lenders and their funding, Basel III wasconceived, updating the requirements of Basel II . Basel In Italy and Australia, lenders themselves have beenIII will require banks to hold a higher proportion of offering mortgage hardship assistance to strugglingliquid assets, and to make greater provisions for adverse borrowers, working through hardship issues and in manyeconomic conditions . cases allowing borrowers to defer mortgage repayments .While Basel III is likely to eventually be applied across the Stimulate or depress? The economic conundrumglobe, since 2007 several individual governments have faced by many governmentsintroduced regulation around the ‘fairness’ of the banking On a broader economic scale, countries have tendedsystem, particularly focused on determining the ability to react to the downturn in one of two ways; either byof borrowers to service debt . Some examples of this providing economic stimulus or introducing austeritylegislation include: measures .• The treating customers fairly (TCF) principles The governments in Ireland, the UK and Italy have all introduced by the Financial Services Authority (FSA) adopted austerity budgets, leading to large cuts in public in the UK in 2007, which ensure that borrowers are spending in order to cut public debt . Public debt in the fully informed of the implications of financial service UK and Ireland has increased due to expensive bail-outs products of high-profile banks .• The US banking reforms introduced in 2010 that include more strenuous requirements for banks determining On the other hand, Australia and the US are among whether borrowers can repay their mortgage the countries that have applied economic stimulus, by• The National Consumer Credit Protection Act (NCCP) spending on public works and providing cash gifts to introduced in Australia in 2010, which brings together consumers to encourage spending and in-turn stimulate state laws on the provision of credit and tougher economic activity . licensing for credit providers and aims to promote responsible lending practices, as well as the Labor Government’s ‘Fairer Simpler Banking’ reforms .
  7. 7. Genworth International Mortgage Trends Report I6Chart 1: Do you feel positive or negative about how your national economywill perform over the next 12 months? India Mexico Canada 5 – Extremely positive Australia 4 – Somewhat positive US 3 – Neither negative nor positive 2 – Somewhat negative Italy 1 – Extremely negative UK Ireland AVERAGE 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: RFi research conducted on behalf of Genworth in March 2011Consumers are more worried about personal At the other end of the scale were Ireland, the UK andfinances than their countries’ economies Italy, all with fewer than 20% of respondents feelingAs they face difficult economic conditions, people positive about the national economy, and over half feelingare feeling less confident in their respective national negative . As mentioned previously, austerity measureseconomies . Across the countries surveyed, over 40% in Ireland, the UK and Italy are likely to be adverselyof all respondents felt negative about their national affecting homebuyer confidence .economy . Split down further, it is clear that there are While a third of all respondents felt positive about theirsome big differences between the higher and lower country’s economy, three quarters were concernedends of the scale, with developing countries particularly about their personal finances . Once again, India andoptimistic . India was the most positive country, with two Mexico were the most optimistic, while Italy and Irelandthirds of Indian respondents positive about their national were among the most concerned, with 46% and 63% ofeconomy, followed by Mexico where 42% of respondents respondents concerned about their finances respectively .were optimistic . Canada and Australia, both countries Interestingly, UK respondents were more positive aboutwhich have fared relatively well over the past two years, their personal finances than their national economy, whilewere also positive, at 38% and 37% of respondents . US respondents were more likely to be positive about the economy than their personal finances .Chart 2: Overall, how concerned would you say you are about your financial situation at the moment? India Mexico Australia 5 – Extremely concerned Canada 4 – Somewhat concerned UK 3 – Neither concerned nor not concerned 2 – Somewhat not concerned US 1 – Not concerned at all Italy Ireland AVERAGE 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: RFi research conducted on behalf of Genworth in March 2011
  8. 8. For people who were worried about their personal In otherwise optimistic India, housing affordabilityfinances, a rise in the cost of living was the most likely concerns are worrying homebuyer respondents morecause . For all eight countries surveyed a rise in the cost of than in any other country, compounded by the prospect ofliving and rising petrol prices due to unrest in the Middle rising interest rates . While interest rates remain historicallyEast were the top two concerns, with the exception of low in many countries, this has not stopped homebuyersMexico . The top concern of those surveyed in Mexico was worrying about the spectre of future rate rises . Goingthe rate of unemployment, which remains above pre- forward this worry will be exacerbated as those increasesrecession levels, despite being lower than in many other start to become a reality . Indeed, Australia had four cash-countries . rate increases in 2010 and the European Union (EU) saw its first official rate rise in two years in April 2011 .Chart 3: Which of the following are you concerned about? (Select all that apply.)100%90% Australia80% Canada India 70% Ireland 60% Italy 50% Mexico40% UK30% US 20% AVERAGE 10% 0% Changing personal Rise in living expenses/ Rising interest rates Unemployment/ underemployment Current government measures Falling property prices Housing affordability utility costs circumstances Other Rise in petrol/gas prices Source: RFi research conducted on behalf of Genworth in March 2011
  9. 9. Indebtedness and comfort with debt go hand A good example of this comfort with debt lies in thein hand Australian market where 39% of surveyed Australians wereAttitudes to debt play a big role in how households view using over half of their income to service debts . However,their financial situation, and how they approach buying a despite this indebtedness, Australians were comfortablehome . Across the eight countries surveyed, these attitudes with their debt and more than one in three said they wouldvaried widely and the contrasts are evident . For example, be comfortable borrowing more than 80% of their home’srespondents in Ireland and the US had the highest levels value, the highest proportion of any country surveyed . It isof current debt, with over 40% of respondents in both a similar story in Italy, the US, the UK, Canada and Ireland,countries using more than 50% of their income each where more than one in five of those surveyed weremonth to service debt . At the other end of the spectrum, comfortable borrowing at more than 80% LTV .less than one in ten respondents from India were using In contrast, fewer than one in ten Indian and Mexicanmore than half of their income to service debt . respondents were comfortable with higher LTV borrowingIn general, it is fair to say that there is a clear distinction of more than 80% . Avoiding debt for homebuyers in thesebetween developing and developed countries in their countries involves saving for a down payment for longer,approach to debt, with respondents from developed thus heightening any perceived issues of affordability .countries more indebted than their developing Meanwhile legislation and product availability has alsocounterparts . What sets many of the more indebted played its part in debt-aversion, for example, most lenderscountries apart is the fact that respondents have a level of in India offer a maximum LTV of 80% .comfort with debt that is not evident in India and Mexico .Chart 4: What percentage of the value of your property would you be comfortable borrowing? Australia 65% Italy 68% Canada 72% Ireland 73% > 100% 91% – 100% US 74% 81% – 90% UK 78% Less than 80% Mexico 91 % India 96% AVERAGE 80% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: RFi research conducted on behalf of Genworth in March 2011
  10. 10. 9 I Genworth International Mortgage Trends ReportCost of living places strain on borrowers, overpaying their mortgages . In Australia, this mightbut the majority easily meet repayments partly be explained by the prevalence of variable rateAs mentioned earlier in the report the rising cost of living mortgages, which are more likely to allow borrowers towas the main cause of concern for the 40% of respondents make overpayments . In addition, in Australia the primaryacross all countries that were worried about their personal residence tends to be the principle non capital gainsfinancial situation . It is reasonable to assume that if 40% tax entity owned by the borrower, which creates a taxof homebuyers are concerned about their finances that incentive to pay off a mortgage sooner . However, therethis would translate into mortgage repayment difficulties . also seems to be an underlying desire to pay off debt asHowever, this is not the case, with just 22% of respondents quickly as possible, which goes beyond product designacross the surveyed countries having faced difficulty or taxation .meeting repayments over the past year . In fact, the Overall, across the countries surveyed, 78% oflarge majority of borrowers easily met their mortgage respondents said that they easily met their repaymentsrepayments, and over a quarter actually overpaid their over the last year, and going forward, 77% expectedmortgage in that time . to easily meet their repayments in the coming year .Drilling down to a country level, Irish respondents were by Underemployment, equating to a reduction to income,far the most likely to have had trouble meeting mortgage was the most likely cause of mortgage stress on average,repayments, with 46% struggling in some or all months . with higher debt levels also weighing on homebuyerItalian respondents were a distant second, with fewer than confidence in Canada, the UK and the US .a quarter stating that they struggled to meet repayments Not all countries were optimistic about their repaymentin some or all months in the last year . Once again, at the abilities going forward . Mexico had the highest proportionother end of the spectrum were Mexican and Indian of respondents expecting to face trouble meetingrespondents, who had the fewest borrowers struggling repayments over the next year, at 53%, despite onlyto meet repayments . 14% having experienced trouble over the past year .An interesting dynamic in many countries is the desire to Mexican respondents were the most likely to expect topay down debt faster than is required . This phenomenon be affected by unemployment, at 39%, as well asis particularly prevalent in India and Australia where an temporary loss of income .average of more than 40% of borrowers surveyed wereChart 5: Repayment behaviour over last 12 months Ireland Italy Australia Found it difficult to make your mortgage repayments every month US Found it difficult to make your mortgage Canada repayments during some months Easily met your mortgage repayments UK every month but did not pay any extra Paid more than the required amount on Mexico your mortgage India AVERAGE 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: RFi research conducted on behalf of Genworth in March 2011
  11. 11. Genworth International Mortgage Trends Report I 10Chart 6: Top five causes of mortgage repayment difficulty100% 90% Reduced income 80% Too much debt 70% Unemployment 60% Increase of mortgage payment 50% Medical bills 40% Temporary loss of income 30 % Auto repairs 20% Excessive use of utilities 10 % 0% Australia Canada Ireland Italy UK AVERAGE Mexico US Note: India is not included as the number who had trouble repaying their mortgage was too small. Source: RFi research conducted on behalf of Genworth in March 2011Recent FHBs no more likely than average to A comparative study of homebuyers in Australia bystruggle with mortgage repayments Genworth found that recent FHBs were more sensitiveIt is easy to assume that recent FHBs who have purchased to interest rate increases than the average homebuyer1 .in the last 12 months might struggle more than the average However, in the two months between surveys, it appearshomebuyer . However, Genworth’s research shows that recent Australian FHBs have become less concernedthese recent FHBs who took part in the survey were no about their ability to meet their mortgage repaymentsmore likely to anticipate problems meeting mortgage with interest rates on hold at the time of the survey .repayments than the average . Local variations on thisdid come through in the results, with recent FHBs morepessimistic than average in Italy and the UK, but lesspessimistic in the US and Canada .Chart 7: Proportion of borrowers expecting to struggle with repaymentsin some or all months over the coming year 60% 50% 40% Recent FHBs 30% Overall 20% 10% 0% Ireland AVERAGE Mexico Italy Australia UK US Canada India Source: RFi research conducted on behalf of Genworth in March 20111 Genworth, Streets Ahead: Genworth Homebuyer Confidence Index, March 2011
  12. 12. 11 I Genworth International Mortgage Trends ReportChart 8: Percentage of income potential FHBs spend on servicing debt US 50% + Canada 30% – 50% Australia 0% – 30% Ireland UK Italy Mexico India AVERAGE 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: RFi research conducted on behalf of Genworth in March 2011Potential FHBs in India and Mexico The situation was slightly better for potential FHBs in thestay home and out of debt UK, Ireland and Italy, though more than one in six of theseWorryingly, even among potential FHB respondents who respondents were still using more than half of their incomedon’t yet have a mortgage, levels of debt are high . In to service debt each month .particular, in the US, Canada, and Australia, at least one in In stark contrast, potential FHBs from Mexico and Indiafive potential FHBs thought they were already spending were much less indebted, with fewer than one in ten ofmore than half their after tax income on debt repayments, those surveyed setting aside more than half their incomesuggesting that the rising cost of living is making it harder for debt repayments therefore, in theory, making it easierfor people to buy a home in these countries . for them to save for a down payment .Chart 9: Number of other generations living with potential FHBs India Mexico Italy More than four Ireland Four Three Australia Two US One UK None Canada AVERAGE 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: RFi research conducted on behalf of Genworth in March 2011
  13. 13. Genworth International Mortgage Trends Report I 12One of the biggest benefits for potential FHBs in Mexico Australia and Mexico are the only two countries where theand India stems from a key cultural difference: potential average FHB age has increased at an above average rateFHBs in these countries are saving by living with their in the past decade, by 7% and 18% respectively betweenparents and extended family for longer . Over 80% of the 1990s and 2000s, compared to a long-term averagepotential FHB respondents in all these countries were of 5% . Of some consolation in Australia is the fact that theliving with at least one other generation, and over 30% age of the average FHB increased 11% from the 1980s towere living with at least two other generations . By living 1990s, indicating that there may have been something ofat home, potential FHBs in these countries are able to a slowdown in this rate of growth . In contrast, affordabilityreduce their living expenses, unlike countries such as for FHBs in Mexico just seems to be getting worse, withCanada, the US and the UK where half of all respondents the average age increasing 35% since the 1980s .looking to buy their own home were already livingaway from the family home, paying rent and incurring India has seen a steady fall in the age of FHBs, andliving costs that impaired their ability to save for a down although price increases over the past year may be apayment on a home . cause for concern, this suggests that increasing prosperity in the country is making home ownership more accessible .Affordability concerns keep FHBs Canada and Italy have also seen falls in average FHB ageout of the market for longer in the past decade, but they continue to have some of theWith an average of one in five potential FHB respondents oldest FHBs among the eight countries . Overall, UK FHBsusing more than 50% of their income to service debts, were the youngest of all surveyed countries, despite ait becomes very difficult for these individuals to save for sharp increase in the average age since the 1970s, seconda down payment on a home and the issue of housing only to Australia .affordability grows . Indeed, Genworth research clearlyshows that the average age of FHBs has been increasing While affordability has been pushing the average age ofin all countries except India . While the average FHB in the FHBs up, governments in many countries have introduced1970s was aged around 27, that has increased to around incentives to try to help FHBs enter the market . These30 in the last decade . include tax benefits, such as waiving stamp duty on property purchase or offering tax concessions (seen in Ireland and Canada) and offering cash incentives (in Australia) . These government measures have no doubt contributed to improved affordability over the last decade .Chart 10: Average age of FHBs by year of property purchase 40 35 30 1970 to 1979 25 1980 to 1989 1990 to 1999 20 2000 to 2011 15 TOTAL 10 5 0 Italy Ireland UK AVERAGE Mexico Canada India US Australia Source: RFi research conducted on behalf of Genworth in March 2011
  14. 14. Affordability permeates the belief that now is a Respondents from Ireland, the US and the UK were thegood time to buy most likely to believe that it is a good time to buy a homeAcross the surveyed countries, existing homebuyers and regardless of whether they were current homebuyers orpotential FHBs were asked whether they believed that it potential FHBs .was a good time to buy a home . With the exception ofCanada, potential FHB respondents were more likely toagree that it was a good time to buy .Chart 11: Proportion that agree that now is a good time to buy a home 80% 70% 60% 50% Prospective property owners 40 % Current property owners 30% 20% 10% 0% Australia Ireland US Italy UK Mexico Canada India AVERAGE Source: RFi research conducted on behalf of Genworth in March 2011
  15. 15. Genworth International Mortgage Trends Report I 14Chart 12: What makes now a good time to buy your own home?100%90% Australia80 % Canada Ireland 70% UK 60% US 50% Italy40% Mexico30% India 20% AVERAGE 10% 0% of properties Houses prices are low Lenders are becoming There is high potential for property Interest rates remain prices to rise lower than they have generally been There is high resale potential The market is becoming more stable more stable government incentives There is a good supply Attractive tax and other are available Source: RFi research conducted on behalf of Genworth in March 2011Further analysis of responses reveals that once again, A perceived lack of property supply was also a deterrentaffordability is the driving force behind sentiment and for Indian respondents, as India has been suffering awhether respondents believed it was a good time to housing shortage due to increased property demand .buy a home . Ireland, the US and the UK have seen sharpfalls in house prices in recent years, and as confidence Higher prices, coupled with property market instabilitybegins to return, these low house prices are an incentive and the current economic malaise, appear to be puttingfor potential FHBs to enter the market . Over 80% of off would-be homebuyers in certain countries, once againrespondents who thought it was a good time to buy a highlighting the issue of accessibility and affordability .home in Ireland, the US and the UK, said that this was dueto low house prices . Low interest rates and a good supplyof property are also further incentives for those in the US,the UK and Canada .While future property price growth can act as an incentivefor investment-minded individuals, overall the high costof property was a major disincentive for those who feltthat now was not a good time to buy a home . This wasparticularly true in India, Australia and Canada, wherehigher property prices are keeping some buyers out ofthe market . In India, a recent rebound in house pricesafter falls seen one to two years ago may be drivingperceptions that prices are high and deterring prospectivehomebuyers from entering the market at this time .
  16. 16. Chart 13: What makes now a bad time to buy your own home?100%90% Australia80 % Canada Ireland 70% UK 60% US 50% Italy40% Mexico30% India 20% AVERAGE 10% 0% Property prices are too high Resale values are too low There are unattractive government measures that are unstable supply of property Too many foreclosures yet to The market is unstable Interest rates are too high are impacting the market The lenders in the market There is not a good be cleared out of the market Source: RFi research conducted on behalf of Genworth in March 2011Mortgage insurance helps borrowers into helpful in enabling FHBs to buy a home with a smallertheir first home sooner down payment, with two thirds of respondents across theWith affordability concerns keeping many out of the eight countries agreeing it would be helpful . In addition,property market, Genworth wanted to understand 60% agreed that MI would be helpful to enable buyers tohomebuyer attitudes towards mortgage insurance . The purchase property earlier than they could otherwise affordresearch showed that when given a brief description of to . In fact, there was widespread support of mortgagemortgage insurance and its uses, over half of current insurance for all types of property buyers includinghomebuyers and potential FHBs in every surveyed investors and repeat homebuyers .country agreed that mortgage insurance would be
  17. 17. In India, where property purchase was seen by insurance as helping buyers enter the property markethomebuyers as more unattainable than any other country, sooner . While in Mexico and Canada there are somerespondents thought mortgage insurance was most useful regional affordability concerns, respondents in theseto help people buy better quality homes than they could countries were the most likely to see mortgage insuranceotherwise afford, with 77% agreeing with this . India, like as helpful for FHBs at 81% and 70% respectively .Mexico and Italy, was also very likely to see mortgageChart 14: How helpful would you consider the following uses of lenders mortgage insurance?90%80% To enable a first homebuyer to buy a home with a small down payment70% To enable buyers to purchase property earlier than they could60% otherwise afford to50% To enable a repeat homebuyer to buy a home with a small down payment40% To enable an investor to invest in30% property with a small down payment To enable buyers to purchase higher20% quality property than they could otherwise afford10% 0% UK Ireland Mexico Canada US Australia India Italy AVERAGE Source: RFi research conducted on behalf of Genworth in March 2011
  18. 18. 17 I Genworth International Mortgage Trends ReportThe Australian marketTable 1: Australia – Key statistics Eight Chart 15: Australia vs. average country Australia average Australia vs . average of eight countries Average age of FHBs* 28.6 30 .1 –1 .5 years GDP growth in 2010^ 2.7% 3 .6% –0 .9% Unemployment in 2010^ 5.2 % 8 .1 % –2 .9% Cash rate# 4.75 % 2 .4 % 2 .3%Mean % income (after tax) spent servicing all debts* 45% 38% 6 .8% % comfortable borrowing LTV>80%* 35% 20% 14 .8% % had trouble repaying mortgage* 21 % 22 % –0 .1% % overpaid mortgage* 45 % 26 % 18 .9% % believe now is a good time to buy a home* 42% 42% 0 .1% % agree that MI is helpful for FHBs* 67% 65% 1 .9% % are positive about the state of economy* 37 % 30 % 7 .2% Less than average Greater than average* RFi research of Australian homebuyers, conducted on behalf of Genworth in March 2011^ IMF# Reserve Bank of Australia (RBA)Almost half of Australians overpay their mortgage, Despite the levels of concern seen towards personaldespite concern over personal finances finances in Australia, this has not yet translated intoAustralian respondents displayed cautious optimism mortgage stress, as the large majority of Australianabout the economy . In many ways, Australians have homebuyers easily met their mortgage repayments in theplenty of reason for optimism, with an economy that has last 12 months . In fact, nearly four out of five Australianremained largely unhindered by economic problems respondents (79%) had no trouble meeting their mortgageand has not dipped into recession over the last few years . repayments over the past year and 45% actually overpaidAs a result, Australia had the fourth highest proportion their mortgage – the second highest proportion amongof people surveyed who felt positive about the economy the countries surveyed . Clearly, while debt is a reality for(45%) . Australians, there is a strong desire to pay it down once they have it, and home owners will do everything they canPersonal finances appeared to be more of a concern than to meet mortgage repayments . The Australian mortgagethe economy, with 44% of Australian respondents troubled market, with its high percentage of borrowers on aat some level about their personal finances . The concern variable rate mortgage and no capital gains tax chargedis mainly due to rises in the cost of living and petrol on a home, encourages the early repayment of mortgages .prices, cited as a cause by 84% and 77% of concernedrespondents respectively . Food prices have certainly been Australian investors chase capital growth,affected following recent flooding and cyclone damage, while high prices lock out FHBswhich has increased . Outside of consumer goods, Part of the reason Australians place such great importancehousing affordability was an issue for Australian on repaying their mortgage lies in the position thatrespondents, with 30% of home ownership has in the national psyche . Put simply,concerned respondents home ownership is the Australian dream . According tociting this, second only the Australian Bureau of Statistics, more than 60% of allto India among the In order to own Australians own a home - one of the highest rates of homesurveyed countries . property, ownership in the world .2 Australians are becoming increasingly However, while owning a home to live in is important, it is indebted not the only motivator behind owning a property . Indeed, investing in property is also very popular in Australia and, of the eight countries surveyed, it had the highest rate of2 Research Institute for Housing America, International Comparison of Mortgage Product Offerings, September 2010, quoting ABS statistics
  19. 19. Genworth International Mortgage Trends Report I 18investment property ownership . In total, 30% of Australian Chart 16: Ownership profile of Australian property ownersproperty owners surveyed owned at least one investmentproperty, and 5% of these property owners ownedinvestment property exclusively .Aside from the sentimental desire to own property, there Own home to live in onlyare three key factors in the Australian market that make Own home and investment property and/or a holiday homeinvesting in property attractive . Firstly, strong historic Own investment property/holidaygrowth in the property market has made investors home onlyconfident of future capital gains . Secondly, a tight rental Own property that is currentlymarket has led to strong rental returns for investors . under construction onlyFinally, the tax benefits associated with negative gearingallow any ‘losses’ made on the investment property to becounted as a deduction on an individual’s tax returns . Source: RFi research conducted on behalf of Genworth in March 2011Affordability an obstacle for FHBs despiteGovernment incentivesThe flipside of the benefits for investors is that they have The impact of some of these measures has had mixedcreated difficulties for FHBs, with housing becoming results . For example, the FHOB temporarily pushed upincreasingly unaffordable and high rental prices making FHB participation in the market from 19 .0% when firstit hard for FHBs to save for a down payment . Among introduced to 28 .5% at its peak, according to AustralianAustralian respondents who believed that now is a bad Bureau of Statistics data . The proportion of loans financedtime to buy, 73% agreed that house prices are too high . for FHBs has declined to almost half the peak rate inAustralians were also likely to move out of home before recent times .buying a house, with 41% of Australian potential FHBssaying they did not live with relatives from any other In addition, the restrictions placed on the FHSA mean thatgeneration . Exacerbating the issue of affordability further the balance of the account can only be withdrawn afterhave been tighter credit conditions in the Australian four years of saving . The uptake of the accounts has beenmarket and rising interest rates . Those who believed that slower than expected, with just 25,600 accounts openednow is a bad time to buy, were also likely to agree that high by December 2010, with an average balance of just $6051,interest rates were a factor, at 66% . according to statistics from the Australian Prudential Regulation Authority .Affordability has been high on the agenda in Australiafor some time . While house prices have been increasing, One in five potential FHBs use more than 50%there have been fears of the possibility of house price of their income to service debtfalls . Affordability concerns have been boosted by the With affordability concerns, rising rent and tighteningresources boom, which has led to residents in resource lending conditions to contend with, FHBs have had torich states such as Western Australia and Queensland take out increasing levels of debt to buy their first home .becoming increasingly indebted to afford property, In addition, many Australians are heavily indebted beforeand these states have seen house price falls in recent they even take out their first mortgage, with 20% ofmonths as well as increases in arrears .3 The Australian potential FHB respondents using more than 50% of theirGovernment has introduced a number of incentives income to service all their debt . In such an environment itto try to help FHBs enter the property market . These is easy to see how these individuals might struggle to saveinclude, First Home Saver Accounts (FHSAs), in which the for a down payment .government matches contributions up to a set amount With many aspiring FHBs facing difficulties saving forand the First Home Owners Grant and Boost (FHOB), a a down payment, mortgage insurance offers a goodcash incentive of $7000, boosted to $14,000 over 2008 alternative and helps this segment achieve their propertyand 2009 . ownership dreams sooner . 67% of Australians surveyed agreed that mortgage insurance is a helpful product for FHBs, above the average of 65% for all surveyed countries .3 Genworth Financial, ‘Streets Ahead: Genworth Homebuyer Confidence Index’, March 2011
  20. 20. 19 I Genworth International Mortgage Trends ReportThe Canadian marketTable 2: Canada – Key statistics Eight Chart 17: Canada vs. average country Canada average Canada vs . average of eight countries Average age of FHBs* 30.26 30 .1 0 .1 years GDP growth in 2010^ 3.1% 3 .6% –0 .5 % Unemployment in 2010^ 8.0% 8 .1% –0 .1% Cash rate (target for overnight rate)# 1.0% 2 .4 % –1 .4% Mean % income (after tax) spent servicing all debts* 45% 38% 7 .1% % comfortable borrowing LVR>80%* 28% 20% 7 .9% % had trouble repaying mortgage* 21% 22% –1 .1 % prepaid mortgage* 19% 26% –7 .2% % believe now is a good time to buy a home* 47% 42% 4 .9% % agree that MI is helpful for FHBs* 70% 65% 4 .4% % positive about the state of economy* 38% 30% 8 .1% Less than average Greater than average* RFi research conducted on behalf of Genworth in March 2011^ IMF# Bank of Canada (Banque du Canada)Almost half of Canadian homebuyers believe borrowing at the same interest rate as borrowers with ait’s a good time to buy a home larger down payment . Mortgage insurance has played aCanada’s economic performance over the past few years significant role in the Canadian mortgage market, bothhas been strong relative to other developed economies through Government backed and private issuers .and it appears that this is having an influence on theoutlook of Canadian homebuyers . In fact, Canadians The Canadian Government has also done a number ofwere optimistic about both the economy and the housing things in the past to contribute to stability of the housingmarket; 38% felt positively about the economic outlook market and to either increase availability of credit, or makecompared to an average of 30% across all countries it easier for would-be homebuyers to afford a deposit:surveyed, and 47% believed that now is a good time to • Insured mortgages can be pooled, through itsbuy a home compared to an average of 42% . operation of the Canada Mortgage Bonds programUnderlying the optimism with regard to the property and other government backed securitisation vehicles,market is the low interest rate environment in Canada, thus facilitating the availability of creditwith over two thirds of those who thought it was a good • The federal Home Buyer’s Plan, introduced in 1992,time to buy citing that low interest rates were a factor in allows borrowers to temporarily withdraw up to $25,000this outlook . from their registered retirement savings plans (RRSP’s) . Genworth research indicates it is viewed positivelyConversely, focusing on those who believed it was not a but underused4good time to buy (23%), property prices were the main • The First Time Home Buyers Tax Credit, introduceddisincentive . In some regions of Canada high house in 2009, is a non-refundable tax credit based on theprices can be a barrier for FHBs wanting to get onto the amount of $5000 and calculated using the lowestproperty ladder . However, specifically as it relates to the income tax rate, for FHBs purchasing a homedown payment, the use of mortgage insurance enables in Canada . In 2009 the credit was $750 .borrowers to put as little as 5% down payment while4 Genworth, First-Time Homebuyer’s Monitor: The Federal Home Buyer’s Program and Home Buying Tools, May 2010

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