Homeowners, particularly in the mining states of WA and Queensland, are already grappling with a number of factors including unemployment, under-employment, stagnant wages growth and weak house prices.
Another looming threat is rising interest rates, with three of the four major banks raising variable home loan rates earlier this year independent of the Reserve Bank of Australia.
Andrew and Rachel Hayden built their dream home in Perth’s south-eastern fringe three years ago, but they are expecting a mortgage default notice from their bank within a month.
“We put probably $600,000 into it and [are] probably going to sell it for $480,000 — shocking,” Andrew Hayden said
He said he wanted to unlock his superannuation to pay his mortgage but couldn’t until the bank served him a default notice.
The couple’s financial problems began when Rachel Hayden fell ill 18 months ago.
The mother of five was forced to stop work and Mr Hayden had to shut down his business to care for her.
“[I feel] absolutely gutted,” she said. “You do everything by the book, everything. Gutted for the kids, they don’t do sports or anything and haven’t because you just can’t afford to.
“It took us so long to get here and we thought yes, no wasted rent money or anything like that
A perfect storm of rising mortgage costs
Credit Ratings agency Moody’s has predicted the situation will worsen as a growing number of interest only loans convert to principal and interest, adding about 30 per cent to monthly fees based on current interest rates
About 40 per cent of all mortgages funded by banks during 2014 and 2015 were interest only, and many of them included clauses which stipulated homeowners would have to start paying principal payments after five years.
Throw into the mix flat wages growth nationally, underemployment on the east coast and stubbornly high unemployment in the west, and according to Keith John, founder of Pioneer Credit — which buys debt off the banks once people default on their loans — you have a perfect storm.
“A perfect storm in the sense of, and I think we’re seeing it play out now, really low retail sales and a general lack of consumer appetite, and … people are desirous to paying down debt but don’t have the capacity that they did a year ago, or two or three years ago,” he said.