Avergae Joe buys a house in 2004 for 250 grand.
His deposit was 20 grand giving him a mortgage of 230k.
Joe pays around $350 a week in repayments...his take home pay is $700 a week so he has $350 a week to cover all expenses eg car loan personal loan food etc.
Interest rate rise 2.5% as forecasted by BIS Shrapnel, Joes repayments then rise from 350 a week to 500 a week leaving him $200 a week to live on.
Joe cant live this like as he has a wife and 1 kid so he decides it would be much easier to sell his house and rent.
Joe puts his house on the market hoping he can sell it and get his 20 deposit back. Firstly Joe loses 3% plus from commissions meaning around 8k loss on his deposit.
The house has no interested buyers at all.
Why Joe wonders is there no buyers now when the time he bought he was fighting buyers to get that house.
Joes friend dave owns a house and hears Joe wants to sell his so he thinks he might buy it off him for 230k using the equity hes built up in his hiome.
He goes to the bank and asks them to value his property he also paid 250k for 3 years ago...the bank comes back and says his house is valued at only 230k now so he cant use the equity.
He asks can he just take a straight loan out to buy the property, the bank responds that since interest rates have risen 2.5% now Dave cant afford to borrow that much as hes struggling to make his repayments now.
So Joe has no buyers for his property anywhere near the amount he paid for it...what can he do...he has to sell...there are no buyers...he sells it for 200k.
Not only does he lose his deposit he also is now 20-30k in the red.
He sits arounf the table with his friends and thye all discuss what a bad investment property is as they watch the evening news and see more people defaulting on their loans.
Now this is without Joe even losing his job...what happens when rates go up...many businesses cant afford to hire labour...building industry slows...unemployment increases.
What happens when not only joe cant afford to pay his mortgage but he also loses his job.
This will be the norm if rates do rise.
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Avergae Joe buys a house in 2004 for 250 grand. His deposit was...
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