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Is Australia about to experience a debt bomb?

Is Australia about to experience a debt bomb?
19Sep2018

In a recent episode of 60 Minutes – Bricks and Slaughter, reporter Tom Steinfort made the bold claim that Australia’s property market is expected to plummet in value by 40% in the next 12 months. Read on to hear the thoughts of our finance brokers.

In a recent episode of 60 Minutes – Bricks and Slaughter, reporter Tom Steinfort made the bold claim that Australia’s property market is expected to plummet in value by 40% in the next 12 months. According to Tom, several real estate and finance experts claim that our falling property prices will cause a huge debt crisis and cause an economic “catastrophe”.
 
Whilst Australia is currently experiencing a buyers’ market, some say the segment has exaggerated the situation as a scare tactic for home owners, and to spark a response from viewers. The view portrayed in the segment is by no means held by all Australian property analysts and commentators, and 60 Minutes failed to include a counterview opinion leaving viewers with a very unbalanced piece of journalism.
 
One of the commentators, Martin North, says that 60 Minutes failed to portray his complete opinion of the market, and chose only to focus on this one scenario. "It is not my central scenario, rated only a 20 percent chance, as I made clear when interviewed."
 

The Australian property market

 
The Australian property market is a diverse market. With markets within each state, suburb and regional town, a sweeping statement of 45% drops across the nation cannot be a true reflection of things to come for all markets. The Sydney and Melbourne property markets have seen a considerable period of growth over the last five years, it is expected some decline in prices will occur as the market corrects after a boom cycle. 
 
In a recent speech addressing Australia’s rising level of household debt, Michele Bullock Assistant Governor of the RBA paints a more balanced overview of the market – whilst our debt-to-income ratio is in the top quarter of world economies – she points out “Australians borrow not only to finance their own homes but also to invest in housing as an asset, this is different to many other countries where a significant proportion of the rental stock is owned by corporations or cooperatives,”
 

Interest only lending

 
One item that may have an impact house growth is the current lending environment, in recent years APRA lending regulators have tightened the screws, placing caps on investment and interest only lending. In more recent times the Big 4 banks have pulled out of the SMSF lending space. With a higher scrutiny on home and investment loan applications many customers have seen their borrowing capacity significantly reduced.
 
Due to the changes in lending, particularly in the interest only space, it is prudent for home owners and investors to be on top of their lending situation. Ensuring they have the correct loan structure and if they have any interest only loans, they are prepared for when the end of their term is approaching.
 

Our tips to you

 
With lending requirements changing regularly, it pays to review your home loan. Home owners should be in the habit of talking to their finance broker every 12-18 months. Situations change and they may be a more suitable home loan product available. If you haven’t reviewed your home loan recently, chat to the team at Carbon Finance who will be more than happy to check their panel of lenders to see if there’s a more suitable home loan product for you.
 
Credit Representative 510598 is authorised under Australian Credit Licence 389328.
Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.
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