Debt hits household budgets

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