April 06, 2010
When lenders assess a borrower's eligibility for a home loan, they generally base it on their assets, liabilities and ability to repay over the long term. Then, a number of interest rate rises and living cost increases are factored in.
What lenders can not foresee is how much debt a borrower will take on after their loan is settled.
Close to one in seven Australians who purchased their first home during the last two years have taken on significant debt since, according to the 2010 Mortgage Choice Recent First Homeowners Survey. Full results will be released later this month.
Mortgage Choice spokesperson Kristy Sheppard said, "It is concerning to hear 15 percent of recent first homeowners have taken on what they say is 'significant debt' on top of their mortgage within its first two years. You would think recent economic volatility and much-discussed rate rises would increase the caution and care with which first homebuyers approach such a large financial commitment."
"Obviously this isn't the case for a significant proportion, who may soon find themselves under serious pressure because of extra debt. Our brokers often find 'mortgage stress' is actually stress brought about by additional purchases such as home furnishings, vehicles and holidays.
"Additional finance obtained through credit cards, personal loans, and 'interest-free' deals are common causes. Lending for these products may not be subject to the same scrutiny as mortgage lending.
"Borrowers must be fully aware that when they take on a mortgage they're making a financial commitment for a very long time - one that takes careful management throughout the life of the loan.
"Anyone feeling the strain of repayments should let their lender or a reputable mortgage broker know as soon as possible and seek assistance while there's still time. It's in no one's interests to see someone lose their home and/or go bankrupt.
"Before taking on post-mortgage debt all borrowers should consider carefully their priorities and what they can realistically afford. Too often, 'mortgage stress' is caused by post-mortgage spending on luxuries and other treats."
More than 311,500 Australians purchased their first home between February 2008 and January 2010 (ABS Housing Finance 5609.0).
For information or an interview, contact:
(02) 8907 0472 / 0407 416 124