kincella, "rates were 12% went to 18%....so I have been there and done that...."
When they were 18% (I remember them too) I bet London to a brick your loan wans't anywhere near what people are borrowing now.
At the time interest rates went sky high, my loan was a protected 13.5% max ceiling rate type, and I owed ~45K on a house worth about 90K. My annual income at the time was around 50K.
45K @ 18% is about 8K interest only. Yes it was a bit of a squeeze but I afforded it easily really when I think about it now. I grossed about 6x what the interest only payment was. And I wasn't on big money either.
Fast forward to today, where I believe the average loan is now about 360K.
360K @ 6% is about 21.5K. Average wages in Oz are about 62K. You now have gross earnings only 3x what the interest only payment is. You'd have to be on over 120K to have the same interest cover.
Clearly there has been a severe decrease in housing affordability in recent years, no-one should or could be able to argue with that. It doesn't appear sustainable to me on any measure.
