Up to 1 million Australian households ‘on the edge’ of mortgage default by September, analyst warns

Up to 1 million Australian households ‘on the edge’ of mortgage default by September, analyst warns. By David Taylor.

Up to 1 million Australian households could be in danger of missing mortgage repayments by September.

That is the warning from one independent analyst if the big four banks do what many fear they will do and increase their standard variable rates rise by as little as 0.15 percentage points over the next few months.

“I’m almost certain they’ll be forced to lift those rates, it’s a question of timing, and of course the political reaction when it happens,” Digital Finance Analytics principle Martin North said. …

His firm … surveys thousands of households to gauge their financial situation and has found many have little to no buffer to meet increased expenses. …

“Today 975,000 households across Australia with owner-occupier mortgages are right on the edge now,” Mr North said. …

Australia’s banks do not just follow the Reserve Bank’s moves on rates; they are also dependent on interest rate rises in other money markets. The cost of sourcing funds is rising overseas, especially in America. But the cost of borrowing money domestically, from within Australia, is also rising.

That is because the Trump administration has asked many major US companies to pull out from offshore investments, including in Australia, as part of its tax policy. As companies like Google and Microsoft withdraw funds from Australia’s money market, the price — or interest rate — of the remaining funds goes up.

The political pressures to keep the emergency low interest rates from the GFC in 2008 are immense. Low cost borrowed money forever! Interest on savings is derisory forever! Really? Why save?

The current low interest rates are not sustainable. The damage to the economy from the flood of malinvestments (based on unrealistically low interest) is huge in the long term.