Soaring house prices leave mortgages exposed

21 March 2016

Mortgages are taking an increasingly dominant proportion of Australian home-owners' debt, as house prices continue to soar, research reveals.

Data from the Australian Prudential Regulation Authority (APRA) found that mortgages now account for close to 90 per cent of owner-occupier housing debt, compared to credit cards and personal loan debt.

Figures from APRA revealed that over the last 11 years the average housing debt of an Australian home-owner has more than doubled, with the after mortgage climbing to $372,400 in January from $189,300 in January 2004.

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Comparison website,, consumer advocate, Bessie Hassan, warned that a decline in housing market could leave house-owners exposed to increased financial pressure.

"If there were falls in the housing market like some experts are predicting, it could have profound implications for mortgagees capacity to service their debt," she said.

"Australians are becoming more comfortable with housing debt than previous generations, as a result of skyrocketing property costs.

"These increasing prices have pushed up loan sizes, with the average national home loan size jumping from $189,300 in January 2004 to $372,400 this January, an increase of almost 100 per cent.

"This has grown much faster than inflation, which would have increased an asset by only about 34 per cent in the same period.

"Simply put, if you're serious about entering the property market, this is the predicament you face."

While the mortgage debt has almost doubled over the last 11 years, the APRA figures showed that credit card debt was relatively stable, climbing from $4,999 in December 2004 to $5,885 at the end of 2015.

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What rubbish! Sure, people are paying more for homes as prices increase, but those buying a more expensive home are assessed by their bank as to affordability. And before that they personally have made the decision as to whether they can afford such a home. Banks also build an interest rate rise buffer when assessing serviceability.

So, if home values fall somewhat, how will that affect someone's ability to service their existing debt? It's not like banks increase the repayments when the value of the property diminishes. The borrower simply needs to continue to repay the debt in the normal way and wait until property prices rise again in the future. That is their price for accommodation, and they have taken on that commitment willingly.

The only problem would be when a value drops so low that a bank calls in their debt, but those with low equity will have mortgage insurance, and those with normal equity would have to see a tremendous price drop.

This is pretty ordinary journalism seeking a sensational headline. You can do better!

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