$140b time bomb ticking over loans

MORE than $140 billion in interest-only mortgages could mature this year, according to a new analysis, sending a shockwave through the Australian financial system.

The tally, which is far higher than previously thought, suggests a rude awakening for Australia’s financially-stretched housing investors.

It means the number of investors facing a dramatic spike in their repayments this year — as their interest-only periods end — may have been grossly underestimated.

The warning comes after the Reserve Bank yesterday raised concerns about financial stress among investors who took out mortgages at the height of the boom.

Assistant governor Michele Bullock noted many interestonly loans, written before lending standards were tightened in recent years, were soon to mature.

“[This] group might find themselves in some financial stress,” she said.

Figures tucked away in a Commonwealth Bank report — published earlier this month — dramatically reshape the conversation around interestonly loans, according to an industry expert.

They show the CBA alone is likely to have almost $150 billion in such loans on its books, including loans issued to investors and owner occupiers.

The report also indicates that almost $40 billion worth of those loans are likely to mature this year.

That means that across the industry, $146 billion in interest-only loans could be maturing this year.

Those borrowers will then have to start repaying the principal, refinance their loans — potentially on more onerous terms — or sell their properties to pay off their loans.

Ms Bullock said property investors were more of a concern than owner occupiers, she said.

“Since it is not their home, investors might be more inclined to sell investment properties in an environment of falling house prices in order to minimise capital losses,” she said.

Figures from research house CoreLogic show house prices fell 0.3 per cent nationally in January, and are down 0.7 per cent since September.