Australian mortgage debt hits $1 trillion

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The latest mortgage figures tell a dark tale of Australian homeowners being among the world’s most indebted with more than $1 trillion in borrowings.

While the Reserve Bank of Australia (RBA) does keep a close eye on the health of the economy, the warning signs of unstable financial times are reinforced by rising mortgage arrears, lenders’ bad debt provisions increasing, and personal insolvencies jumping to near record levels.

Financial counselling services around the country are seeing greater demand for advice and help than ever before, with Chief Executive Officer of Financial Counselling Australia, Fiona Guthrie, suggesting her company’s services couldn’t meet the latest demands.

The increase in recent calls has been largely from people suffering mortgage stress. “There are more people who have got mortgages that they can’t afford to pay,” said Ms Guthrie.

Commonwealth Bank economist Gareth Aird believes the RBA will take a conservative approach to lifting rates in the near future and doesn’t believe we will see any lift in 2017. “There’s so much household debt that a couple of rate hikes here would completely knock the wind out of the housing market, and a lot of people would be impacted by it,” said Gareth.

In a January 2017 report, Citigroup banking analyst Craig Williams stated, “Pockets of stress appear manageable in 2017 given the prevailing low interest rate environment” – reinforcing Gareth Aird’s claims.

What do you think? Are Australians with little liquidity, taking out too much debt? When rates do rise (and they will), are many Australians in for a rude shock? Do we need tougher lending laws to ensure that homeowners always own a significant portion of any house purchase?

Read more at smh.com.au
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46 Comments

Total Comments: 46
  1. 0
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    All I can say to this is;”suck it up Princess”. If people want to own a home so badly that they borrow the maximum that they can and hope that interest rates won’t rise, a forced sale is inevitable. Most of the contributors to this site lived through home loan rates of 17%+ and managed to struggle through. The main reason that most kept their homes with those very high rates was that they had stumped up a large deposit of at least 25% and therefore had a feeling of ownership. A lot of us started with an older home in need of a bit of work and subsequently moved up to something bigger or more modern.

    How did we get the deposit of 25%? Most of us went without things such as expensive holidays, eating out, buying lunches, sitting down to coffee at a café and trying to live on one wage whilst banking the other. These things appear to be anathema to today’s prospective home buyers who want everything, they want it now and they want a home as well. Add to that the need for a McMansion with multiple garages and a car in each and, of course, it must be close to the CBD.

    We are told ad infinitum that housing costs are all the result of negative gearing but when negative gearing was changed in the ’90’s, the only tangible result was that the cost of rental properties rose dramatically. Maybe negative gearing has a part to play but it’s not the whole answer. It’s simply a case of the law of supply and demand. There aren’t enough houses being built to accommodate the numbers of prospective buyers and when something is in short supply, the prices rise. We need to look at two things, the release of suitable land for home building and the amounts that councils charge developers who are lodging DA’s. Developers will always pay whatever councils ask and will add any additional costs onto the end price so the buyers finish up paying the council’s exorbitant fees.

    • 0
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      I do worry for my grandchildren, how are they ever going to afford a house. One possible solution is bringing back the state housing commissions and restarting the Commonwealth/State housing agreements. It was what gave us all a start when we wanted to get into the housing market, if not directly then indirectly by keeping prices down.
      Say a basic house 16 – 18 squares, with 3 or 4 bedrooms, I bathroom and a carport on a block of at least 600 sq metre. Maybe release some funds from the Future Fund to kick start it.
      Anyone suggest an alternative solution?

    • 0
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      Eddy, I think your idea has a lot of merit. Your measurements are a little on the generous side compared with what was the norm with government housing in the past. I don’t agree with your last sentence, people should be asked for additional solutions, not alternative.

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      What about 10 – 12 squares – 2 bedrooms was how most of us started. Not in the inner city suburbs either an hour train trip from work.

    • 0
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      Old Man, I absolutely agree that too many prospective home buyers have no idea how to save money or how curtail their ownership aspirations to fit their budget. We too started with a small apartment, sat on orange boxes etc. struggled with 17-20% mortgage rates and so on. Now we live in some comfort, but we worked hard, were frugal and weren’t risk takers.
      However, I do disagree with you on one matter, negative gearing. What is commonly overlooked is that negative gearing was introduced to offset the income from a rental property against the expenses of financing and maintaining that property.
      On a global basis negative gearing isn’t widely practiced. Where it is, like the USA, UK, Canada etc. the principle that rental income can only be offset against loss on that property applies.
      In Australia, Japan and under NZ (with certain conditions) the rental income can be set off against other income, a tax reform introduced by Paul Keating. Until a few years ago negative gearing was known, but not exploited. However in 1999 another tasty morsel was put on the table a discount of 50% on capital gains tax, courtesy of then PM John Howard.
      Then the developers, banks and tax specialists woke up to this lurk and In Australia, negative gearing by property investors reduced personal income tax revenue in Australia by $600 million in the 2001/02 tax year, $3.9 billion in 2004/05 and $13.2 billion in 2010/11.
      So not only negative gearing distorted the value of homes and made home purchase un-affordable for the average person in metropolitan areas, it costs us tax payer $13+ billion per year to line the pockets of the already wealthy.
      However, Scott Morrison assures us that it has no impact and has no plans to fix housing affordability. Another do nothing Treasurer, when’s he off to a cushy overseas posting too?

    • 0
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      Good post Old Man. Pretty well tells the story, not that the current batch will want a bar of it.
      The author’s figure of $1 trillion is probably quite meaningless though as it is the average cost per borrower which gives a true account not the total debt.
      There are places in the world where property is worth a heck of a lot more. Some old dumps are selling for $2 million+ and we’re not talking about Manhattan or New York. I might think Australia fits into this
      somewhere without being a stand-out as suggested.
      You are correct that we are not building enough housing. Had we not imported so many people then we wouldn’t have a problem. Where are to do gooders?

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      MICK the do gooders are off congratulating themselves on their humanity and compassion and warm fuzzy feelings.

      You notice they never come up with any concrete solutions to anything. It is all about how they feel and what they believe and how they think you should feel.

  2. 0
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    You mention mortgage arrears then mortgage borrowings – there is a difference so you should clarify. Another article compares a line of credit product with a reverse mortgage – however with the line of credit nothing was mentioned about affordability, i.e. the borrower has to have the means to repay the loan so not all people with equity would qualify unless they have good cashflow so if they did why would they need to borrow..? Interest on a line of credit can probably be capitalised each month but it would still need to be repaid at some time and the bank would surely take that into account and if you are older you probably would not qualify for a loan anyway…lots of information left out of both articles…

  3. 0
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    Yes there are several reasons Old Man. Causes, in fact. Low interest rates; pathetic, greedy, uncontrolled BANKS; 1.2 million negative geared investors with massive tax benefits; foolish “home” buyers trying to compete with them, just a few.
    The argument claiming that supply is a major factor is destroyed by the ratio of investor buyers (92%) and “first home” buyers (8%).
    The more that are built, the more of that “commodity” for those fortunate taxation supported investors; They LOVE houses, some with a dozen!!!
    The current “first home” buyer will NEVER again be able to buy a home like WE did in the 60s. Never. Sure, we faced 17% interest rates, but based on mortgages that ordinary wage earners could afford. Ordinary wage earners today need NINE yeas just to save the deposit!!
    This generation has long been priced out of the market and nothing to do with smashed avocado breakfasts, and teenagers of today face exactly the same sociological disaster. No wonder they have “given up” and living for today, what’s the point in busting your gut, like most of us did, to chase the impossible dream???
    Most of those 92% of houses purchased by investors (the negatively geared ones) will be the basis of the accommodation of this and the next generation of families.
    WHAT have WE done?????

    • 0
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      I checked your figures Grateful and whilst you’re close on the first home buyers, the actual percentage is 13.9%. Of the remaining 86.1%, 42.8% are investors and 43.3% are those who are upgrading.

    • 0
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      Do give it up Grateful, there is not a single business where you can not deduct the borrowings to fund the business from the income of the business, to give a figure for profit. Why should rental be any different?

      Line of credit can be very dangerous for some people jen. I have a couple of mates, with good earning capacity sure, but who now own moderately large boats, & expensive cars, but owe considerably more on their home loan that the initial cost of the house. It won’t take much of a downturn for them to be in negative equity.

      As for affordability, my 26 year old daughter & her husband have just moved into their new home. Not a McMansion, but very nice. They first bought a cheep house in an unfashionable suburb, pinched the pennies to save, & gained equity in the cheep house, so they could afford what they wanted.

      Interestingly some of her friends, with expensive cars, boats & after long overseas holidays, tell her they don’t know how they have managed it.

      If only our schools still taught some math, they might be able to understand.

    • 0
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      Hasbeen. Then why can negative geared investors claim their property losses against their other private income. Yes, let them just claim expenses on property investments against their property investment losses. That would be a great start and while you are at it, why give them a 50% capital gains tax discount?? Lot’s can be done in many other areas but don’t be like Morrison and just blame one factor.
      P.S. I was 21 when I bought a 11 thousand pound house 17 miles out of Melbourne (a far out suburb then) but is now “valued” at $700,000. Up THIRTY FIVE TIMES and more than TREBLED since the Howard decision of CGT. Call that a supply and demand problem? No, bought by an investor, negatively geared, and let to four students. No way a first home buyer will ever be able to do that without lots of help from family and friends.
      Old Man. Check the December 2016 figures. Only 8% first home buyers got into the market.

    • 0
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      Yes, there are other causes of high prices / large loans.
      Stop Overseas investors (such as Chinese) creating excessive demand, only allow local Residents / Citizens to purchase property here.

      Disallow Negative Gearing beyond one property (as some use one property to break into the market). Taxpayers should not support multi-property investors by subsidising them – shocking exploitation by the wealthy supported by the moronic / self-interested political parties.

  4. 0
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    I still think some young people wanting to get ahead should get a job in a regional town where housing is much cheaper. Some towns have 3/4 bedrooms on very large blocks for $200 000 to $300 000. And there are jobs.

    One town I like very much currently has 78 jobs listed needing filling, good shops and services and a starter unit on an acre for $175000 or a three bedroom home on a 3/4 acre for $250 000.

    If I was starting out I’d apply for all those jobs that I could.

    That’s just one town in a growing, hospitality area supplying weekend visitors from Brisbane. It is like the Hunter was 40 years ago.

    There are plenty of towns like that out there where the immigrants won’t go but then neither will any other kids it seems.

    Ten years and you move to wherever you want and can get a job.

    People forget a lot of the Boomers were bonded to go work wherever they were sent and it didn’t hurt them.

    • 0
      0

      What you have today is an entirely different scenario.
      In the 1970 house repayments were gauged on one income with a x3 your salary rule against a mortgage. So if you earned $10K you could have a loan of $30.
      Houses were typically paid off in 14 years and any longer than that was considered to be a waste of the mortgagees money.
      Several years ago it became the norm that it would take two incomes to pay off a home loan and a x7 rule with 30 years to repay the loan.
      Now its taking two people and a guarantor and a x12 rule.

      There aren’t jobs in remote locations. We have centralised our work force and the factories that drove our small towns are now off shore.
      Coupled with the marriage breakdowns whereby parents need to live in a similar location to equally support their children.
      Then include the reliance on the extended family structure now both parents have to work and child care costs are prohibitive.
      The list continues.
      The government needs to fix the housing crisis. They need to start building homes that are affordable and big enough for young families – NOW.

    • 0
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      Rosret. How true and back in the 60s the bank manager wouldn’t even count the wife’s income in calculating the amount you could borrow!!
      Today they even give credit cards to make up the balance of the deposit and to fully furnish the house and a car, over 110% of the cost of the house, and you wonder why they (including the government!!!) don’t want a Royal Commission into banks!!! Surprise!!
      And while on the subject of marriage break ups and family violence, guess why that has escalated into epidemic levels??? Hmmm.

    • 0
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      Roscret I was in that town recently so the jobs I quoted are available. The house prices are advertised so you might pay a bit less. The town needs over 70 workers right now.

      As I said if needed I’d move there as it is a very nice town. Just down the road is another one just the same.

      There are growing industries out there supplying the fine food markets and weekend wine tasters etc.

      It is impossible in Sydney or Melbourne I agree. Just where do you think these new housing estates will be found.

      Why pay %500 000 for a home and commute two hours a day when you can live in the town you work in and drive to work in 5 minutes.

    • 0
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      Rae I am presupposing these jobs are non skilled. That would probably mean our children with university degrees and significant years of training (especially in the IT and specialist fields) would have to ditch it all to afford to live in a remote location.
      The Government needs to decentralise its departments and start creating self sustaining towns just the way it did 150 years ago.

    • 0
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      Yes Rosret, short of going overseas those with degrees in areas with excess amounts of graduates may need to do something else. Training in IT would be useful in some of the jobs as they all use computers these days.

      There are 10 000 teachers, a lot trained in PE/PD?Health just for a start who will not get a teaching job unless they do go to a remote location.

      Then they can keep looking for that perfect job where they want. It is just a start. A way to save up equity and get on with life.

      Back in 1969 when I finished year 12 we were very lucky to get a number of scholarship offers. I would have dearly loved the Bio Chemistry one but my family couldn’t afford it. I went nursing instead and then teaching and then into business and onto farming and then lecturing in the Army then back to relief teaching.

      Some of it in remote locations.

      If I was relying on the OAP because I had suffered the hardships which prevented saving I would certainly sell here, take the money and move to one of those mountain resort towns. With climate change accelerating it makes a great deal of sense especially if those young ones are still game to bring children into this mess.

      And there are jobs and cheap starter houses. Although far too few of those.

      Yes decentralising to townships with water supply makes sense. I can’t believe they have let Wellington NSW go to ruin when there is that great whopping dam there. Lack of sense and any sane planning.

  5. 0
    0

    Only reason home prices went up was due to cheap money..like drunker sailors the public went on a spending binge

    • 0
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      Yes – that and the GFC hitting the stock market and the increase in immigration and a lack of infrastructure to accommodate our growing cities, the baby boomers investing their super in real estate and negative gearing.

  6. 0
    0

    There is a way around the problem if we had a government with a few brains .Stop immigration for a period,abolish negative gearing lift interest rates etc. Make a move to a country region all is possible.But the old greed before country is alive and well and nothing will happen with the leaders we have.

  7. 0
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    Personally I think every one wants a new house with every modern convenience that goes with it & then trying to keep up with the Jones.I dont know what bank charges are or what people can borrow as I dont live there any more but to me its a matter of what you can afford.

    • 0
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      Bandy there is a duel income stream in our society. One stream is buying no garden mansions and the others on a normal wage who haven’t yet bought into the system can’t even save to match the huge increase in house prices over the last two years.
      If they do have enough money they are getting pipped by investors every time.
      Believe me – I have been going round looking at places with my son and what is affordable is horrible. I wouldn’t let him live in these places.

  8. 0
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    I think there are a number of reasons: 1. cost of the land. When I started all costs to develop the land were stretched over many years and you paid for it in your rates. Now the developer has to do everything upfront and the buyer pays in full on purchase. 2. houses today seem to have everything from ensuite to TV room to alFresco area included. My and my compatriot dwellings had two or three bedrooms, (four bedrooms were unheard of), laundry outside , just the basic things. Today I see Beachhouse getaways advertised for $96000 that could perfectly well serve as a residence and not just a holiday home. In the Alice 60 years ago everyone(apart from the Public Servants) lived in the garage and built their house on weekends bit by bit. They even made the cement bricks themselves. I know, it is not fashionable today and expectations are sky-high compared to ours. there are many ways you can help home ownership, but no one wants to do it. PS. negative gearing has nothing to do with it and is just a smoke screen.

  9. 0
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    What a load of Cr-p reports like this are.

    Australia has one of the highest home ownership rates in the world – so, of course, there is also a high level of borrowings – Duh – you economists – get into the real world.

  10. 0
    0

    The RBA bank has led many house buyers into a false sense of security and therefore must take part of the blame when the game changes and rates go up.No doubt the RBA will delay this change as long as possible and blame other economic factors for people having to sell their homes.Of course people are also stupid having being sucked in without doing their maths

    • 0
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      Your comment would be closer to the mark if banks did what they used to before deregulation and follow the RBA’s changes of interest rates. They are now a law unto themselves and lift and lower rates as the mood takes them.

    • 0
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      The rates the bank charge depend on what bond markets are doing. Right now the bond market bubble is the largest ever in history. Something like 300 trillion I read.That doesn’t include the derivatives which is in the thousands of trillions. Bond investors are increasingly skittish about continuing to pile savings into a beast looking more and more like eating their capital up. They are demanding greater yields for the increase in risk.

      Now if the Australian government issued bonds at say 1.5% would you buy them knowing how broke we are and everything sold up and no revenue coming in. Of course the super funds have to buy don’t they.

      I’m of the belief this is going to get very ugly quite quickly but then I tend pessimism anyway. I hope I’m wrong.

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