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Tuesday, March 11, 2008

Australian's Repossessed: Foreclosures on the Rise

Foreclosures in New South Wales set to rise to a record this year after the central bank increased rates twice in the past two months to a 12-year high.

Banks are in the middle of their third mortgage rate increase this year and that's pushing more Australian families out of their homes.

Mortgage payments are increasing at least 2 1/2 times faster than household incomes. Lenders including Commonwealth of Australia Bank Ltd. and National Australia Bank Ltd., the nation's biggest, have raised loan rates three times this year, boosting the average monthly mortgage payment by more than the average annual increase in wages.

We're only now really starting to see a situation where defaults arise because people aren't able to meet their payments.

The Reserve Bank of Australia last week increased its benchmark borrowing cost for the fourth time in seven months to 7.25 percent to cool inflation that grew at its fastest pace in 16 years in the fourth quarter.

Banks are charging more as the global credit crunch raises funding costs after investors fled debt markets, as fewer residential mortgages are being granted after funding costs are increasing in the wake of the U.S. subprime market's collapse.

Global financial turbulence and the peculiar exposure of the Australian financial system which is heavily dependent on foreign markets for funding, and this leads to the banks having to charge more.

A situation in Sydney's West recently saw one mortgage holder owed A$600,000 and received bids of no more than A$330,000 when his property went to auction.The seller had previously refinanced, adding more debt to the A$475,000 or so he borrowed to buy the house. Some people are just walking away from their properties: the equity's halved in many cases.

Housing affordability dropped to the lowest in at least 33 years in December, as average disposable incomes stayed below the amount needed to qualify for the median home loan for the fifth- straight quarter, according to an index compiled by the Housing Industry Association and the Commonwealth Bank.

Repossessions in New South Wales rose 1.6 percent to 5,454 last year, according to figures from the state's Supreme Court. Victorian repossessions increased to 2,720 in the year to June 30 and have tripled in the past four years, according to the state government.

The actual number of mortgage defaults may be four times the repossession figures, which only include seizures and sales approved by the Supreme Courts of New South Wales and Victoria.

Rising borrowing costs are pushing more families into housing stress, with some 1.1 million Australians paying more than 30 percent of their income in rent or home-loan costs. In fact, Australians are paying the second-highest mortgage rates in the developed world.

Simon Turner simon@marquetteturner.com.au

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