Hundreds Lose Homes As Rates Rise

The Age

Wednesday August 2, 2006

By BEN DOHERTY and NASSIM KHADEM with MEAGHAN SHAW, FARRAH TOMAZIN

THE number of Victorians being sent to the wall by their mortgages has jumped dramatically, with home-loan defaults up a massive 50 per cent this year.

As borrowers brace for today's expected announcement of another interest rate rise, new figures indicate that higher rates, soaring petrol prices and other financial pressures have already resulted in more people being thrown out of their homes.

Claims for repossession of properties lodged with the Supreme Court of Victoria in the first half of this year totalled 1474 - up from 968 in the same period of last year.

The vast majority of the claims relate to private home buyers defaulting on repayments.

The number of defaulters is expected to climb further in the second half of this year, with the July-December period typically busier for default claims, and predictions that rates could rise again before the end of the year.

Economists believe higher inflation will be the key factor pushing the Reserve Bank to increase official rates by a quarter of a percentage point to 6 per cent. The Reserve board met yesterday, and will announce its decision at 9.30am today.

If rates go up, it will be the seventh consecutive increase in more than five years, and the second one this year. The last rate rise was in May.

A 0.25 percentage point rate rise would add about $35 a month to the cost of servicing an average-sized variable rate home loan - a prospect that could add to political pressure on the Federal Government.

Prime Minister John Howard last night played down the rates issue, saying higher petrol prices were the "greatest worry of my political life" and that another rate rise would still mean they were at historic lows.

But Opposition Leader Kim Beazley said Mr Howard had broken his election promise to keep rates low. "We have now the second highest interest rates in the industrialised world. We have now an Australian community borrowed to the eyeballs with very high levels of household debt. Another interest rate rise will be crippling for an awful lot of people," he said.

According to InfoChoice research, if rates go up by one quarter of a percentage point, a person on an average income of about $50,000, with a $200,000 mortgage will be $33.58 worse off every month - a figure that takes into account their monthly tax cuts of $42.51.

An analysis by the ACTU - taking into account tax cuts, rate rises and petrol increases - suggests a family with a $250,000 mortgage and earning up to $60,000 a year will be $107.35 a month worse off.

ACTU president Sharan Burrow, in a speech to be delivered in Melbourne tonight, says: "Under this (Federal) Government, people are working harder not to get ahead but just to keep what they have got.

"On the other hand, people on high incomes of $120,000, who received the greatest tax cuts from the Howard-Costello budget and with the same home mortgage, despite the rate rises, are still better off to the tune of $191 a week - or nearly $200."

Financial and Consumer Rights Council executive director Ian Mackintosh said another rate rise would push many people into financial crisis. "A lot of people have next to no disposable income once their mortgage and other repayments are met, they simply have no room to move," he said.

Manager with Victoria's Consumer Credit Legal Service, Carolyn Bond, said: "We see a lot of people who are right on the edge, and it's not going to take much to tip them over."

Ms Bond said the most vulnerable people were those with several lines of credit extended, those in outer suburbs hit by the "double whammy" of interest rates and petrol prices, and those on new forms of credit such as 100 per cent home loans. She suspected the increase in default figures could result partly from people refinancing loans with more aggressive lenders, who then took action through the courts once the default occurred.

Not all of the claims before the courts result in defaulters being ordered out of their homes, with some paying off their debt or refinancing.

CommSec chief equities economist Craig James said about 8.7 million Australians would be directly affected by today's rate decision, and low-income earners would be hit hardest. "People in rural and regional areas that have a higher transport component and are also paying off their mortgage are being hit by higher fuel prices and their mortgages are costing them more," he said.

Michael Mazurka, Victorian general manager of the Institute of Chartered Accountants, said higher-income earners would have to cut back on discretionary items such as holidays and luxury goods. But those with lower incomes, and less discretionary money, would have to cut back on key items.

Victorian Treasurer John Brumby said low-income families would be "severely punished" and the manufacturing sector would take an unwanted hit if interest rates rose again today. He urged the board to wait before raising rates again.

Premier Steve Bracks said Mr Howard and Federal Treasurer Peter Costello should take responsibility for any rate rise, given their pledge at the last election to keep rates low. "That will be the first test of this new leadership arrangement on whether they take responsibility for what is likely to be an interest rate rise backing on to very high petrol prices," he said.

But state Liberal treasury spokesman Robert Clark said the State Government could help offset an increase by providing more stamp duty relief for home buyers or by reducing fees, fines and charges. -- With MEAGHAN SHAW, FARRAH TOMAZIN

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