Home Survival

Reporter: Laura Sparkes

Ian and Kerry Lindsay are a dying breed. They own their own house, they recently made their final mortgage repayment beating todays rate rise and tomorrows gloomy outlook for millions of mortgages. "Today everyone wants plasma TV, all the electronic wizadry, the cars seem to be updated, theres a world of credit people are running rampant and being silly and not keeping focus on priorities being their own house" says Ian.

When the Lindsay's bought their 2 storey, 4 bedroom home in Sydney's north in 1986, they had a deposit of $40,000 and borrowed $125,000 at a time when interest rates were 13 percent! "These days to find that you have a quarter percent increase in the 7 percent area it is scarey that homeowners don't have any reserve funds to bounce out of it, the banks have made it too easy for a lot of couples, just throwing the money out there and its caused them to come to grief" says Ian.

In fact last year alone there was a 329% rise in mortgage insurance claims, people simply failing to meet their mortgage repayments so with the average variable rate now sitting at 8.3%, the 9th rate rise in the past five years, how many more are going to default? "A lot of people went in on much lower repayments and these payments have been creeping up creeping up and I think a lot of people are close to the breadline and this next rise could tip them over the edge." Peter Switzer owner of Switzer Financial Services, blames the lenders for handing over too much money...too easily. "We see people getting loans without a deposit, in the olden days you needed a third deposit to get into a loan, so if rates went up you have breathing space, now people are so tight once the rates go up they really are in dire straits." And there's something else that's helped drag us into more debt. Strategies by the banks to encourage young couples to cash in their equity to buy more property.

TV ads once flooded our screens a few years back when interest rates were as low as 6 percent.... and home prices were increasing. "One thing is for sure no lender takes an active interest in really working out whether you can afford what you're borrowing you have to take responsibility" says Peter.

So what does this latest rate rise mean to you?

  • § In NSW where the average loan is $302,000, you'll pay an extra $51 a month.
  • § In Victoria it will cost you another $39 a month.
  • § In Queensland, you'll have to find an extra $40 in your wallet.
  • § In WA, its $42 more a month
  • § In South Australia, you'll be scratching for another $33 a month.

"Even though the rates went up today the bottom line is they are historically low levels, there was a time when rates were 17% so they are still very very good in overall context the amount people borrowed was a lot more but people are earning a lot more." Warren O'Rourke is the national corporate affairs manager for Mortgage Choice, a mortgage broking company that offers products from 29 different lenders.

"Given that this is the ninth rate rise in the last five years I guess people question whether they should fix or leave it variable, one of the things they need to consider is right now fixed rate loans are slightly more expensive than variable" says Warren. In fact they're about $34 a month more expensive. Five years ago variable loans were about $19 a month cheaper. But Warren points out the real savings come when you can lower your unrealistic expectations.

"Maybe they've got to save a bit longer, or maybe they've got to look for a cheaper home... there used to be a time when you were happy to take the furniture that mum and dad had left over but there seems to be a situation today where more often than not they want the brand new furniture they want to look like a designer home from day one" says Warren.