So that basically means anybody who loses their job in the next 12 months, or in fact has lost their job in the last 6 months has next to no chance of entering the housing market even if they find new work. Clearly this is not a good situation for the market as a whole. And with Government estimates we are heading towards 7% unemployment, this is possibly tens of thousands that are simply ineligible to enter the market.
Not having an adequate savings history or adequate equity from the get-go was one of the very elements of subprime! While lending standards may not be as low or to the near unemployed as what occurred in the US, if we look to the UK where 100% loans were common, it's a very thin line between LVR100% and 96%! And we can see where the UK has headed, where lending standards were *not* as lax as the US, but low LVR's were a clear contributor.
A small 5% or less cash deposit clearly shows the borrower cannot budget effectively to save over even a short period of time, and may well struggle as an owner at doing the same. Having a bare 6% deposit (and only say 3% of that your own), clearly would put FHB into negative equity with only small falls in the market, the magnitude of which has already been felt in the market in the last 12 months... Give it some further economic conditions deteriorating, and such borrowers will be in negative equity. And what happens if they lose their job once in that position?
Given that less senior employees are probably some of the most vulnerable in the workplace to layoffs, it's setting up for a tense situation for many in the coming year or two.
Never mind if/when interest rates go up several percent in future years... where there are similarities with such a scenario in the US situation, where ARM resets were one of the key triggers to setting off the whole crisis.