Bloomberg News

U.S., U.K., Irish Borrowers Most Glum on Economy, Genworth Says

June 08, 2011

June 9 (Bloomberg) -- More than half of U.S., U.K. and Irish borrowers are pessimistic about their economic outlook and personal finances, while Indians, Canadians and Australians are most upbeat, according to a survey by lenders’ mortgage insurer Genworth Financial Inc.

A quarter or less of mortgage borrowers in the U.S., U.K. and Ireland feel positive about their economies, Richmond, Virginia-based Genworth said in its first International Mortgage Trends Report, released today. In contrast, nearly two thirds of respondents in India were optimistic and less than 30 percent in Australia and Canada were negative, according to the survey of more than 9,000 current and potential homeowners in the U.S., U.K., Canada, India, Ireland, Italy, Mexico and Australia.

“The rise of the middle class and a strong savings ethic will mean increasing personal wealth and higher demand for credit as Indian national prosperity grows,” Genworth said “The austerity measures introduced in Ireland have clearly had a negative impact on sentiment,” while rising living expenses and oil prices led to pessimism in the U.K. and high unemployment and falling house prices weighed on U.S. borrowers.

Ireland is considering selling homes at a discount in an effort to revive a housing market that has fallen 40 percent since 2007, while property values in 20 U.S. cities dropped in March to the lowest level since 2003. On the other side of the world, Citigroup Inc. forecasts India’s economy will expand 8.1 percent in the year to March 31, 2012, and Australia is benefitting from a mining boom that’s keeping the unemployment rate at almost half the U.S.’s and pushing wages higher.

Genworth, which has more than $100 billion in assets, provides insurance services in more than 25 countries, including the ones the survey was conducted in, according to its website.

Debt

Borrowers in Ireland are most likely to have trouble meeting repayments even as property prices decline, primarily due to falling incomes following austerity measures implemented last year, Genworth said.

Despite the U.S.’s tough economic climate, more than 80 percent of borrowers expect to easily meet their mortgage payments over the next year, “suggesting that homebuyers are slightly more optimistic about their ability to make repayments than they have been in the past year,” the report said.

The number of U.S. homeowners newly in default declined about 21 percent in April from a year ago, according to mortgage insurer Radian Group Inc., and more borrowers have now permanently lowered their mortgage payments as part of a government program to prevent foreclosures.

In Australia, while a fifth of potential first-home buyers spend more than half of their incomes after tax on debt repayments, some 45 percent paid more off their mortgages than required, compared with an average of 26 percent.

Repaying Debt

The number of loans granted to build or buy houses and apartments in Australia gained 4.8 percent in April from the previous month, the most since March 2009, as the central bank extended a pause in raising interest rates and home prices declined in the first quarter by the most since 2008.

“Clearly, while debt is a reality for Australians, there is a strong desire to pay it down once they have it and homeowners will do everything they can to meet mortgage payments,” the report said.

Home affordability is still an obstacle for first-home buyers in Australia, with nearly three-quarters of respondents saying prices are too high and more than two-thirds saying high interest rates are a factor. First-home buyers accounted for 15.8 percent of dwellings that were financed in April, down from 16 percent in March and lower than 16.9 percent a year earlier, a statistics bureau report showed yesterday.

Affordability

Housing shortages in India and Mexico are also contributing to declines in affordability, with only 6 percent of Indians saying now is a good time to buy property.

Mumbai home sale registrations fell 30 percent in April from a year earlier to a 23-month low, as higher interest rates and rising prices prompted more people to defer purchases and opt for renting, brokerage Prabhudas Lilladher Pvt. said last month.

In Mexico, the average age at the time of buying the first home is among the highest among countries surveyed, despite 83 percent of respondents living with family before buying, driven by a shortage of dwellings, the report said.

“This problem will become a bigger issue over the next 10 years as the homebuying 25-45 year-old population grows,” Genworth said.

In Ireland and the U.S., more than 60 percent of respondents said the drop in prices and a high supply of property mean now is a good time to buy, Genworth said.

In the U.S. in particular, “among first-home buyers who bought their first home in the last 12 months, the large majority have coped well and met their mortgage repayments comfortably,” the report said. “It is encouraging to see that despite tough economic conditions and an uncertain outlook, many Americans hold on to the belief that property is a solid investment vehicle.”

--Editors: Malcolm Scott, Linus Chua

To contact the reporter on this story: Nichola Saminather in Sydney on nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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