Debt hits house­hold bud­gets

Money Magazine Australia - - THIS MONTH -

Ev­ery­one is happy when house prices go up, ex­cept those who are try­ing to gain a foothold in the mar­ket. And prices have been mov­ing steadily north, ris­ing from two times an­nual dis­pos­able in­come in 1990 to more than five times this year.

How­ever, prices have sud­denly dipped, par­tic­u­larly in the key mar­kets of Syd­ney and Mel­bourne, and those who have taken on too much debt to fi­nance a pur­chase may now strug­gle. Prices are fall­ing but the debt re­mains the same.

To add fur­ther pres­sure, bor­row­ers on in­tere­stonly ar­range­ments will be forced by the lenders onto prin­ci­pal and in­ter­est ar­range­ments as their in­ter­est-only loans ma­ture.

This will put fur­ther pres­sure on house­hold bud­gets.

Mean­while, the Re­serve Bank con­tin­ues to men­tion lev­els of house­hold debt, in­clud­ing this mon­e­tary pol­icy state­ment from Novem­ber 6: “One con­tin­u­ing source of un­cer­tainty is the out­look for house­hold con­sump­tion. Growth in house­hold in­come re­mains low, debt lev­els are high and some as­set prices have de­clined.” Alex Mof­fatt, di­rec­tor at Joseph Palmer & Sons

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