mark bouris highlights the unspoken fears

In mortgage trouble? There's worse to come
By Mark Bouris
July 01, 2008 03:43am

THERE'S a significant number of Sydney homeowners on a knife-edge right now, when it comes to mortgage repayments.

I'm going to be honest with you here, but you also need to be honest with yourself - if you've done everything you can but are still on Struggle Street, then put your house on the market now and get out of trouble before it's too late.

I'm saying this because I fear there's a major problem looming over the next few years.

I know this because of what I hear in the industry and what my customers are telling me every day.

Interest rates have gone so high in the last few years that across Sydney homeowners really are battling. And there's worse to come. Much worse.

You see, it is unspoken, but there's hundreds of thousands of people across Sydney who signed up to a fixed loan three or four years ago before interest rates shot up.

They'll soon be switched from their "introductory fixed rate" to a much higher loan. And they have no idea what is about to hit them.

Separate to this, interest rates have gone up so much in the last few years that a lot of the calculations that lenders originally applied to assessing someone's ability to pay back a standard variable loan are now nonsense.

This is largely due to the fact that the Reserve Bank has put up rates, and on top of that lenders have increased interest rates independently of the central bank.

And, while rates are the main financial driver of mortgage stress, they are not the only factor. Auxiliary factors include relationship breakdown, losing your job, falling sick, or stopping work due to pregnancy.

My message is that people should be sitting down and looking at their mortgage repayments and figuring out if they can afford them.

Mums and dads need to take their heads out of the sand and start looking at the next six months, because these high interest rates could last for another year or so.

There's only so long some people can hang on.

I'm not predicting armageddon but there are hundreds of thousands of people who will be adversely affected and I don't think they have sat down and done the calculations.

Whose job is it to actually make these people aware? Well, partly mine. Which is why Wizard is offering advice on mortgage stress, including how to recognise if you are approaching it and what to do to avoid it before it is too late.

If you go to the Wizard website you can read strategies that may help you alleviate mortgage stress including tips on budgeting, refinancing, hardship programs, payment options and suggestions for extra income.

We are doing this because if homeowners leave it too late and it becomes a problem, it then becomes everyone's problem.

People say you should sit down with a financial planner and figure things out, but realistically most Australians can't afford a financial planner.

All we know is that the cost of living is going up dramatically. Average Australians spend their money on food, petrol, rent, mortgage, school fees, clothes and holidays. And every one of those has gone up.

If you can't hold out for more than the next six months, then maybe you are better off selling now.

But remember there are other options out there.

By taking the initiative and choosing options such as talking to your lender, seeking external financial advice, doing the maths and doing your homework, you are making the conscious choice of taking your head out the sand. And this is the best move you will ever make.

*Mark Bouris is the founder and chairman of Wizard Home Loans