Ensure you never miss an issue of the
real estate business bulletin
Homeowners to suffer under increased debt burden

Homeowners to suffer under increased debt burden

by Reporter 0 comments

Homeowners that capitalised on record low interest rates and lifted their debt commitments are set to experience increased financial hardship in the months ahead, a new survey has found.

More than 75 per cent of homeowners added to their mortgage or took on other forms of debt when interest rates were sitting at their 49-year low, according to a poll by Loan Market Group.

A significant 44 per cent of homeowners increased their home loan while only 23 per cent did not take on any more credit.

Loan Market Group’s chief operating officer Dean Rushton said the increased debt burdens could really hurt Australians now given the fact that the RBA was gradually starting to raise rates.

"Hundreds of thousands of Australians are in greater debt than they were a year ago so any increase in interest rates will hurt,” Mr Rushton said.

Loan Planners’ Ken Bruns told Real Estate Business that while some borrowers may struggle under higher interest rates, most brokers would have warned their customers about potential rate increases and should have worked out their borrowing capacity with the rising rate environment in mind.

“The Reserve Bank wants to see retail rates sitting at approximately 7.5 to 8 per cent. With this in mind, I recommend to all my customers that they pay their mortgage off as though interest rates were already at this level.

“In this respect they are able to pay more off their mortgage when rates are low and have a buffer stopping them from feeling any pain when interest rates rise,” Mr Bruns said.

“Some borrowers will always struggle because interest rates are going up rather than down. That said, if a borrower is struggling now with rates around 6 per cent, they have been led astray by their financial manager.”

Earlier this week, the central bank raised the cash rate for a second month in a row, lifting the cash to 3.5 per cent and there is speculation the Bank may raise rates again in December, taking the official cash rate to 3.75 per cent before year’s end.

le>.b-autolinks{text-decoration:underline}.b-autolinkshadowbox { display: inline; position: relative; cursor: pointer; color: #428bca;} .b-autolinkshadowbox:hover > span { display: block !important; } .b-autolinkshadowbox__links { white-space: nowrap; z-index: 999; display: none; left: 0; border: 1px solid #bfbfbf; border-radius: 5px; font-size: 12px; top: 12px;color: #000; padding: 10px; position: absolute; background-color: #FFF; box-shadow: 0px 0px 20px 1px #bfbfbf; } .b-autolinkshadowbox__links > a { display: block; padding: 3px 0; }
Homeowners to suffer under increased debt burden
lawyersweekly logo
promoted content
Recommended by Spike Native Network
Listen to other installment of the Real Estate Business Podcast
reb top 100 agents 2017

The REB Top 100 Agents ranking is the foremost ranking of agents in Australia. It has set the bar for excellence in Australian real estate. To be ranked as an REB Top 100 Agent is the standard real estate professionals strive for. See the full 2018 ranking here!

featured podcast

featured podcast
An industry where the resilient succeeds

Tim Heavyside believes that a strong support team and good foundations are paramount to success in the real estate industry, and with regu...

View all podcasts

Would you consider working for Purplebricks or a similar 'DIY' model?

Yes (7.2%)
No (80.9%)
Perhaps - make me an offer (12%)

Total votes: 209
The voting for this poll has ended on: July 13, 2018
Do you have an industry update?