Mortgage home loan growth creates a new debt crisis for homeowners

New warnings on house price rises to cause mortgage stress.

Homeowners tightened their belts last year in a great effort to reduce personal debt, by using the savings that lower mortgage home loan rates gave them in the Global financial crisis, to stop using their credit cards and pay down their personal debts.

Recent RBA [Reserve Bank of Australia] figures demonstrate that Australia’s total mortgage debt is 38.2 per cent bigger than national household income, and that rapid growth over the second half of last year is likely to have been an unwanted side effect of the Rudd Government’s incentives to first-home buyers. Yes it savedthe jobs of hundreds of thousands in the Building industry, but in turn has created a new set of problems for those “fortunate” first home buyers.

Household debt trends

Mum and Dad property investors with million dollar mortgage home loans.

Mortgage home growth creates a new debt crisis for homeowners Homeowners tightened their belts last year in a great effort to reduce personal debt, by using the savings that lower mortgage home loan rates gave them in the Global financial crisis, to stop using their credit cards and pay down their personal debts.That savings effort is starting to wane, and more people are using their credit cards again, and with mortgage home loan interest rates, and the price of home prices rising again throughout Australia, that can only mean one thing. More household debt, and a looming return to mortgage stress. Our surveys have shown that with another one percent rise in interest rates, then 40% of homeowners will be termed as suffering mortgage stress. Recent RBA [Reserve Bank of Australia] figures demonstrate that Australia’s total mortgage debt is 38.2 per cent bigger than national household income, and that rapid growth over the second half of last year is likely to have been an unwanted side effect of the Rudd Government’s incentives to first-home buyers. Yes it savedthe jobs of hundreds of thousands in the Building industry, but in turn has created a new set of problems for those “fortunate” first home buyers.Household debt has been outstripping inflation and wage growth over the last 20 years, but the global financial crisis did bring the nation to their senses, and as mentioned people did curb their debt levels.A disturbing trend  see is that many people that have reduced their debt levels, are now taking new debt on with the purchase of investment properties. That is pushing people into the million dollar plus mortgage debt on the family home and he investment property. So if prices do slide even 10% it could make lenders nervous, and push these new investors into negative equity.And there is the dilemma. If the sole reason for the home price rises is house shortages, the fix of a massive building of housing stock will surely hurt a lot of these investors.  Fortunately for residential investors, and their promoters, this seems a long way off and hopefully time for natural inflation to work its magic. Mortgage home loan interest costs are climbing to a level that will  affect households financially. We will see the fallout of the stress in by late in the year.

Author: Rick adlam, Mr Mortgage Home Loans

About: Rick Adlam: Rick Adlam has been helping clients with home loan finance since 1985 when he was home consultant with AV Jennings. Rick started Equity Home Loans in 1996 to help homeowners become property investors. Rick currently consults in the development of Mr Mortgage for mortgage brokers and HomeMate for new home buyers. Website: http://www.mrmortgage.com.au