Fears As Home-loan Defaults Move Up Income Scale

Fears As Home-loan Defaults Move Up Income Scale

The Age
5 April 2008
Nassim Khadem, Economics Correspondent, Canberra

THE number of court writs indicating whether people are defaulting on home loans has topped 10,000 nationally, with concerns that higher interest rates, food, petrol and utility costs could push more low to middle-income households into financial ruin.

Figures from the state and territory supreme courts show that writs or warrants issued for repossession of land hit more than 10,300 last year.

The number is a small proportion of the 2.8 million households with a mortgage, but counselling services say the problem is moving up the income scale to middle-income households.

The figures are not broken down into regions and do not define who is affected (whether it is families defaulting on their homes, or businesses defaulting on investments). It is believed the majority relate to mortgages.

Real estate agents say recent first-home buyers in Melbourne's outer suburbs are victims. "We're talking new estates in the outer suburbs - the west, including Taylors Hill, Hoppers Crossing, Melton and Caroline Springs, to areas in the north like Mill Park, Epping and Mernda," said Jim Hatzimoisis, director of Barry Plant agents. "If you look...south-east or east it's Cranbourne, Pakenham, Rowville and, to a degree, Berwick.

"It's predominantly younger first-home buyers, and from what we can see the debt that's built up isn't purely and simply on their housing mortgage, but a combination of factors, such as credit card debt and money owed on two-year, interest-free purchases of furniture."

Figures from 2001 show that the numbers of writs or warrants issued for repossession of land have risen each year, with the worst state being NSW, recording 5454 cases last year. Victoria was the second-worst affected state, with 2845 cases reported last year, followed by Queensland at 927.

Land repossessions in Victoria hit record highs in January and February this year when compared with the same months since 2001.

There were more than 10,300 applications for repossession of land in Australia last year, an increase of 1.6% over the previous year. This was the smallest increase over five years for which data is available, and which does not take into account volume changes in the housing market such as more home sales.

Reserve Bank data shows the problem exists mainly in western Sydney suburbs including Liverpool and Blacktown, and that writs are usually higher than actual repossessions. It is expected that the Reserve Bank will soon publish new figures showing that rates of defaults remain high in the same areas.

David Tennant, principal with Consumer Law Centre ACT, said the story he was seeing was "consistently depressing", and moving up the income scale. "What started as a subtle shift from low-income people has become a surge towards middle-income households," he said.

John Falzon, national chief executive of St Vincent de Paul Society, said that besides repossessions, households generally were struggling with debt.

National Shelter executive officer Mary Perkins said the pain of higher interest rates would continue to fall on the disadvantaged. Roger Mendelson, chief executive of debt collection agency Pruska, said that this year's rate rises could push more people into financial difficulty. "The number of defaults is still historically low...But that could change."

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