Interpac Business and Migration Solutions Melbourne Australia

(June 8, 2010)

Australia's record mortgage debt could expose some borrowers to greater ''financial shock'' should interest rates or joblessness rise, a credit ratings agency has warned.

A report by Standard & Poor's reaffirmed the quality of local residential mortgages, while flagging the danger associated with the high levels of debt held by Australians for their homes.

''We believe the larger debts and higher leverage expose some Australian mortgage holders, especially those with less equity in their houses, to potentially greater financial shock if high unemployment and interest rates, alongside a collapse of residential property values, were to occur,'' said Standard & Poor's credit analyst Vera Chaplin.

Australians have taken on record amounts of debt in recent years – mainly to fund the purchase of homes. Capital city house prices have jumped 20 per cent in the year to March, according to official Australian Bureau of Statistic data. In April, national city home prices gained only 0.2 per cent, to a median price of $460,000, according to RP Data.

Despite the high debt levels, Standard & Poor's said the housing market's robust fundamentals would ''continue to support the housing market''.

Australia avoided a recession and experienced stronger growth and lower joblessness than other developed nations during the global financial crisis.

In April, total Australian mortgage debt for owner-occupied housing was $774 billion, while debt for investment purchases totalled $330 billion, according to data from the Reserve Bank.

While it is a record amount of debt, experts say the risk arises not from the amount of debt held but the ability of households to service the repayments.

''Mortgage default is a relatively low probability outcome, but one with devastating consequences,'' JP Morgan economist Ben Jarman said in an analysis of the housing market.

''So too with joblessness."

Mr Jarman said provided the economy remained strong - and joblessness low - capital city house prices were expected to rise by 12 per cent in 2010.

(Source from: theage.com.au)