The Australian housing market is suffering from falling house prices and rising repossessions, raising fears it could follow the crisis-hit US market.
Reports suggest many households are falling into negative equity while the loosening of lending criteria and high loan-to-value deals have created stress for borrowers although the bubble has yet to burst as it has done in the US,
The news once again brings into sharp focus whether the UK may be affected by the spreading property gloom.
Borrowers in Australia have been struggling due to a steady increase in interest rates, which have climbed from 4.25 per cent in December 2001 to the current 6.25 per cent. There is speculation this week that the Reserve Bank of Australia, which sets interest rates, will increase the rate once more.
Repossessions in the southeastern state of Victoria have more than doubled since 2003 while the overall repossession rate in the country rose by 25 per cent last year.
A survey by banking giant Macquarie found that almost two-thirds of mortgage brokers expect to see an increase in mortgage defaults.
The RBA says: “Mortgage arrears have increased following the general lowering of credit standards over the past decade. There are some pockets where household finances are under strain, particularly in western Sydney, and among households that took out loans with high loan-to-valuation ratios in 2003 and 2004.”
One report this week on Australian news website News.com.au said: “Some homeowners are now in a position where their mortgage is worth more than their home.”
Mortgageforce managing director Rob Clifford, who has many ties to the Australian market, says: “In the big city locations, prices are falling and some people are falling into negative equity. There is strain in the market.”