The last housing boom, which saw many jump into the property market feet first on the back of an increase in the first home owner’s grant, meant a large number of Aussies finally realised their long held dream of home ownership.
Now though as interest rates are on the way up, for the hundreds of buyers who over-committed to large mortgages just to break into the housing market, the Great Australian Dream has become a financial nightmare.
According to an article in the Sydney Morning Herald, home owners in Victoria and New South Wales are struggling more than in any other state, with borrowers on the brink of mortgage stress; where households require more than 30 per cent of their gross income to meet their monthly repayments.
Messages for home owners are mixed at the moment, with some analysts suggesting rates will remain on hold or even go down over the next year, while others have a more bullish view of the economy and believe they will inevitably start to rise once more and could almost hit the 10 per cent mark.
The Reserve Bank kept rates on hold again for July, but suggested that “further tightening n monetary policy would be necessary at some point,” during their June meeting, given Australia’s strong economic outlook.
This prospect is daunting for some home owners, who could be forced to find an extra $100 each month on an average $300,000 mortgage should we be slugged with two more rises totalling 0.5 per cent each.
Given the affordability issue surrounding our property markets, many buyers are being forced to up the ante when it comes to how much they borrow so they can get a foothold on the property ladder or upgrade their existing home.
RateCity chief executive Damian Smith says the size of the average mortgage has been increasing in many states, leaving recent borrowers more vulnerable to mortgage stress.
In order to gauge who is under the most mortgage stress at present, RateCity set the average home loan in each state against the average income.
They found that repayments in NSW already chewed up 27 per cent of average household income, Victoria and South Australia followed at 25 per cent, Queensland and Tasmania were both at 24 per cent, Western Australia at 23 per cent, the Northern Territory at 22 per cent and the ACT was at 19 per cent.
Even with the latest suggestions that interest rates may be on hold for a while, the message is clear for borrowers and with an increase in the amount of Aussies saving their pennies in recent months, it seems to be getting through.
No more can we afford to spend up frivolously on credit for things we cannot afford and really don’t need. Now is the time to save, save, save and make sure you have enough of a buffer for the next rainy day, which could be just around the corner.
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