21 June 2018

Fears of housing ‘fire sale’ as interest-only loans roll into principal plus interest

Source: ABC News

As property prices in Australia have climbed over the past few years, thousands of Australians desperate to get a foothold on the property ladder have used interest-only loans.
But the interest-only period on these loans doesn’t last forever.

Over the next three years, interest-only loans worth a combined total of about $360 billion will roll over to interest plus principal — and that means borrowers will face higher repayments.
“The kind of nightmare scenario is where a lot of people need to sell at once, and that’s when you see a kind of fire sale mentality, and could see very significant downward pressure on prices,” said Professor Richard Holden from the University of New South Wales Business School.
“That puts the banks under stress, and their balance sheets under stress, and it could lead to significant financial instability.”
Six months ago Professor Holden said there was a risk the Australian housing market could face a US-style meltdown, and he maintains there is a risk that downward pressure on prices could lead to financial instability.
According to ABS data released on Tuesday, residential property prices fell 0.7 per cent in the March quarter.
Sydney recorded an annual price fall of 0.5 per cent, the first since the March quarter of 2012. Prices in Melbourne dropped 0.6 per cent, the first quarterly fall since the September quarter of 2012.






« All Sector News