PHOTO: Is a Australian property crash coming?
- Banking litigator Roger Brown warning of ‘biggest bubble in Australian history’
- He issued the warning amid speculation of a Reserve Bank rate rise today
- More than 1.5million Australian home borrowers have never deal with rate rise
A banking expert who leads lawsuits against Australian banks is warning of a major property market crash as interest rates rise.
Roger Brown, a former Lloyds of London insurance broker, is forecasting the ‘biggest bubble in Australian history’ as the Reserve Bank cash rate rises from a record-low of 0.1 per cent.
A possible rate rise on Tuesday would be the first since November 2010, which means it will hit more than 1.5million borrowers who would have never experienced a variable rate increase.
In February, 9,994 first-home buyers took out a mortgage for the first time and were among 152,346 who became new homeowners during the past year, Australian Bureau of Statistics data showed.
Many borrowers paying off a house with a seven-figure price tag could see their monthly mortgage repayments rise by more than $800 within a year as interest rates keep going up to curb soaring inflation.
Mr Brown, who has previously instigated class actions against Australian banks, said a series of interest rate rises could cause property prices to crash as borrowers struggled to keep pace with higher repayments.
‘The biggest housing bubble in Australian history has been upon us for three years now, and consequently, the biggest financial bust in history is upon us,’ he tweeted.
‘Probably 1.50 million mortgage borrowers will go under.’
A retired London insurance broker who leads lawsuits against Australian banks is warning of a major property market crash as interest rates rise (pictured are bidders at a Melbourne auction)
How much you could be paying in 2023 every month on your loan
$500,000: Monthly repayments rising by $521 from $1,922 to $2,443
$600,000: Monthly repayments rising by $625 from $2,306 to $2,931
$700,000: Monthly repayments rising by $729 from $2,691 to $3,420
$800,000: Monthly repayments rising by $833 from $3,075 to $3,908
$900,000: Monthly repayments rising by $937 from $3,459 to $4,396
$1,000,000: Monthly repayments rising by $1,042 from $3,843 to $4,885
Data based on variable rate rising from 2.29 per cent to 4.19 per cent
At the start of the pandemic, Australia’s average weekly household income stood at $2,349 or $121,108 a year.
That meant a couple with that combined income, as measured by the ABS, was able to buy a $908,000 house with a 20 per cent deposit.
With a mortgage of $726,648, they would have a debt-to-income ratio of ‘six’ – the level the Australian Prudential Regulation Authority deems to be risky.
But huge price increases have seen Sydney’s median house price surge to $1.417million, CoreLogic data for April showed.
In Melbourne, the median house price is $1.001million.
That means many couples getting into the property market for the first time would have taken on mortgages above the riskier debt-to-income ratio of ‘six’.
The Covid downturns saw property prices drop in early 2020 as national lockdowns sparked the first recession since 1991.
Later that year in November, the Reserve Bank of Australia cut the cash rate to a record-low of 0.1 per cent, causing national house prices to last year surge at the fastest annual pace since 1989.
Inflation in the year to March soared by 5.1 per cent – the fastest pace since mid-2001 following the introduction of the GST.
Roger Brown is forecasting the ‘biggest bubble in Australian history’ as Reserve Bank interest rates rise from a record-low of 0.1 per cent
Sydney, Melbourne in worst drop since 2020
SYDNEY: Down 0.1 per cent in April, down 0.3 per cent in the quarter to $1,416,960
MELBOURNE: Down 0.2 per cent in April, down 0.5 per cent in the quarter to $1,000,926
BRISBANE: Up 1.7 per cent in April, up 5.9 per cent in the quarter to $880,332
ADELAIDE: Up 1.9 per cent in April, up 5.6 per cent in the quarter to $676,546
PERTH: Up 1.2 per cent in April, up 2.5 per cent in the quarter to $578,751
HOBART: Down 0.4 per cent in April, up 1.4 per cent in the quarter to $793,723
DARWIN: Up 1.3 per cent in April, up 3.2 per cent in the quarter to $576,149
CANBERRA: Up 1.3 per cent in April, up 2.5 per cent in the quarter to $1,070,220
Source: CoreLogic median house prices in April 2022
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