Crunch Time for Aussie Mortgages
Increasing numbers of Australian households in regional areas and suburbs outside capital cities are facing mortgage repayment stress. The Sunshine Coast in south east Queensland and Mandurah outside Perth are examples.
It was recently stated that Aussies on average owe twice in debt for every dollar of income. Ten years ago, the interbank rate set by the Reserve Bank was 7.25 percent, today it is only 1.5 per cent. Any future increase in this interbank rate could prove to be the tipping point for the continuing ability of mortgage borrowers to repay their loans, which can have amounts ballooned by interest.
Throw in the accelerating prices asked for properties, especially in Sydney and Melbourne. Are there therefore all the ingredients for a perfect financial storm to occur amongst those who borrow from the banks? Average personal incomes have stalled whilst house prices have Sky rocketed.
After around thirty years since the last technical recession in Australia, it is sad and surprising that there is a significant risk of mortgage stress. Are banks still applying the one third ability to repay rule to customers, as they chase the lucrative home loans market and use a strong commission payment arrangement to raise mortgage numbers - of course not!
On the other hand, increased prices of properties do mean rising amounts of easy revenue for government levels like councils and state governments in terms of stamp duty and land tax.
Is the banking industry then partly responsible for creating this mortgage stress? Are financial planners, brokers and advisors encouraging individuals to borrow more on the belief that the equity in their properties will always increase as prices keep on rising? Will the bubble burst, or will there be a never ending flow of funds from overseas pushing into high property prices, due to attractive migration and education opportunities in this country?
Consumption seems to drive economic drivers in Australia. There is no longer added value from creating real things in this nation, as manufacturing declines are not set off by significant contributions in bio technology, automated innovation, programming code niches and cyberspace start ups. The economy primarily depends on the varying demand for mineral resources, Government spending, retail buying and housing statistics to continue the nation's economic growth and revenue streams.
Will house prices continue to rise forever? What goes up will usually have to come down, if just temporarily. In the meantime, are many home borrowers over extended on their ability to repay if and when banks call in their loans, to cover their exposure between reduced property market values and outstanding mortgage amounts owing to the banks.
It is said banks never take any major risks lending to you - you as the borrower have the burden mostly to yourself.