Mortgage Stressed On The Rise Despite Cuts
Sydney Morning Herald
Saturday November 29, 2008
BECAUSE of cuts in interest rates, the number of households under mortgage stress fell 3 per cent to 770,000 in October compared with the previous month. However, the latest Fujitsu Consulting Group national survey of mortgage stress has found that those in severe stress rose by 13 per cent to 291,000.
Severely stressed households are more likely to be forced to refinance or sell in the coming months and, on average, 5 per cent will default on their mortgage. "We found that a significant number of 'off-the-plan' speculative property investors now faced the prospect of trying to sell in a falling market and are facing potential negative equity as a result," says Fujitsu Consulting's Martin North. Despite recent increases in first home buyer incentives, many were concerned about their employment prospects. Mortgage stress among the wealthy continues to increase as more margin calls and falling sharemarket returns continue to have an impact, North says. The survey results indicate property prices will continue to fall until uncertainties about employment abate. "It is unlikely that future interest rate cuts, even if they are fully passed on to households, will turn this around," North says. Cash keeps money in pocketsCASH is king in times like these. With nervous investors looking for "pure" exposure to cash, UBS Global Asset Management will launch a "protected" version of its cash fund to invest solely in assets covered by the Federal Government guarantee. Over the past several years cash funds have been investing in riskier assets such as hybrid securities, higher-yielding short-term corporate debt and securities backed by mortgages. Some "cash-enhanced" funds have been reporting negative returns. The UBS Protected Cash Fund is an alternative to the UBS Cash Fund, which has returned 7.6 per cent after fees during the past year. UBS says its existing cash fund holds high-quality, higher-yielding assets but the new fund will give investors even greater confidence. Head in the sand works bestIGNORANCE is bliss when it comes to superannuation. While announcing that the median-performing balanced superannuation option lost 17.61 per cent for the year to October 31, SuperRatings' founder, Jeff Bresnahan, extolled the virtues of ignorance. "In a perverse sort of way, the financial illiteracy and general apathy of the average fund member . . . is a good thing, as many will ignore the headlines and let their super fund manage the crisis as best they can." Bresnahan acknowledges that ignorance is not so good for those close to retirement who are most affected by falling markets as they are faced with decisions that will affect them for the rest of their lives. The five-year returns for the better-performing funds are still very respectable. MTAA Super's balanced option is the best performer over the past five years to October 31 with an average annual return of 10.7 per cent. The balanced option of the 1.4 million member AustralianSuper returned an average annual 8.2 per cent over the past five years. Not all funds are created equal. Over the past year, the difference between the best and worst-performing balanced options is more than 16 percentage points. Hedge funds to be clipped THE call by the Harvey Norman boss, Gerry Harvey, to "shoot" short-selling hedge fund managers may be unnecessary because they may just disappear. Many will be forced to close and there will be significant consolidation because of market conditions and unprecedented changes to the regulatory landscape, according to the consultancy firm Watson Wyatt. But Watson Wyatt believes the best managers will emerge in a better position to exploit investment opportunities. Watson Wyatt says the fee structures of hedge funds are likely to be improved to better align interests with investors. Watson Wyatt Australia's Hugh Dougherty says hedge funds have not performed well this year but many have performed better than other strategies. "This has come about despite the well-publicised headwinds facing the industry in the last year." He says the global financial crisis exposes those that are not structured to add value for investors, while providing the most skilled with attractive opportunities and potential for substantial returns in the future.
© 2008 Sydney Morning Herald
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