According to many real estate and financial experts, the current real estate climate in Australia is remarkably similar to that in the U.S. just before its own housing bubble burst. One of the strongest indications of this phenomenon is the fact that many homeowners around the country are down on their mortgage payments. While some of this is attributable to the lackluster economy and faltering job market, a lot of it can be traced back to homeowners who bit off more than they could chew when acquiring their home loans and failed to obtain the correct broker information.
Easy Terms Spell Trouble for Aussie Homeowners
Back in May, the Australian Prudential Regulation Authority warned of a sharp increase in the issuance of high-risk mortgages, including interest-only loans and financing for rental properties. Lenders are giving people mortgages that they may eventually struggle to repay. A huge contributing factor to this problem is the fact that many Aussies assume that lenders will only approve them for loans they can afford to repay. That’s not the case. Rather, lenders only look at certain factors. It’s up to homeowners to sit down, crunch the numbers and determine whether or not a particular loan is practical.
Outstanding Mortgages Skyrocket
Although first home buyers continue to struggle to get the loans they need, the number of outstanding mortgages in Australia has continued to rise precipitously. According to the Reserve Bank of Australia, the number of outstanding mortgages in the country rose by 6.5 percent from July 2013 to July 2014, which represents the fastest pace since February 2011. Currently, about 85 percent of all owner-occupied home loans were of the variable-rate variety. When rates rise, which they’re expected to do over the next 18 months, mortgages that were once affordable may become anything but. In fact, a two-percent increase in the mortgage interest rate would create serious financial woes for about one-quarter of all Aussie homeowners.
High-risk mortgages play a huge part in many Australians’ inability to stay current on their mortgages, but other factors are contributing to the issue too. The 6.1-percent jobless rate isn’t helping. Also, according to a government inquiry, Australians owe about 1.8 times their pre-tax disposable incomes in home loans. Those with interest-only loans often start struggling to repay them when they start having to pay the principal balance. Planning is crucial when it comes to avoiding these issues. If you’re in the market for a new home, then, take your time, consider all the variables and make sure you will be able to repay your mortgage even if things change.