The overcooked housing market could send thousands of home owners into mortgage stress as interest rates creep towards 3%
The following is a transcript from the video:
Well the overcooked housing market could send thousands of Aussie homeowners in the mortgage stress as interest rates creep toward three percent according to research by Deloitte Access Economics. Nine finance editor Ross Greenwood is here with all the details this morning among other things.
Karl: Ross good morning to you.
Ross: Yeah good Karl.
Karl: A lot of debt load it up.
Ross: Well that’s right and Dr Chris Richardson is one of the best economists in this country so he’s put out a warning, particularly about Melbourne and Sydney prices. He says Sydney prices right now a dangerously dumb. Now most people are exposed to these, of those people who are buying into the market right now, those people are taking on big home-loans and those people especially first-time buyers who are struggling to get in and suddenly find themselves if they do get in, that they have very little equity and then if they lose a job bust up their marriages, whatever, they could have problems.
Chris Richardson says he believes that interest rates in Australia from the reserve bank will double over the next three or four years, double from one-and-a-half percent to three percent. But, that would cause enormous amounts of pain if mortgage rates were to go back to say for example 6%.
Karl: All this stuff that is overcooked, that the thing is that I read today, yesterday or in the last week, an attic in Rose Bay sold for 1million dollars.
Ross: Yeah I know, this is a sort of stuff you can’t believe and if you’re living in Perth, if you’re living in Darwin, if you’re living in hobo, you can’t believe those types of stories, because there are affordable houses in Australia, many people who want to live in Sydney or Melbourne or parts of Brisbane, they just don’t choose to live there and so as a result, there’s a lot of buying demand there’s a lot of investors from overseas wanting to buy and that’s the fundamental problem.
Karl: You know better than me, you have been in this game for centuries. The prices in Sydney just keep going up there.
Ross: But it stops, it ultimately stops, it reaches a point at which people cannot physically afford them or people go broke. When that happens, then you get a fall and that’s what Chris Richardson’s worried about, because now the Reserve Bank can control it. But you can do something about it. There is a survey today that has come out that says you can save significant amounts on your mortgage, but it’s what we’ve been saying for a long long time.
Karl: Okay, what is your advice to those people out there concern they may be headed for some level of mortgage stress.
Ross: Okay, if they go to three percent, there is another survey out today that says it could be nearly a million people who end up in mortgage stress. You know that’s a third of all people.
Karl: Come on three percent, I remember mum and dad were paying seventeen percent.
Ross: True, but they hadn’t borrowed as much money and so what happens is if you suddenly find yourself with a massive mortgage and interest rates rise very rapidly, you’re in some mortgage stress to the point at which if you lose your job you could lose your house as well. So the answer is fixed rate loans and to hang on to your job. These are the two key things that people can do. There are defences these days that people have got, that they didn’t have when your mum and dad were buying their first home and that is the fundamental difference in our property markets right now.
Source: 9News/Ross Greenwood