Home News Huge mortgages put first-home buyers at risk for default

Huge mortgages put first-home buyers at risk for default

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With deposits and home loan sizes in Australia reaching record highs, it might be more difficult for first-home buyers to meet mortgage repayments over time, according to a report from economic consultancy LF Economics.

"First-home buyers will have to commit an increasingly large proportion of their incomes to mortgage costs, regardless of dwelling price trends," the report indicated.

It also does not help that asset-rich but income-poor parents, mostly from the baby boomer generation, are assisting their children in buying a home by taking on serious financial liabilities.

"First-home buyers are dependent on their parents to varying degrees to first provide financial assistance for a deposit and then use their homes as collateral to secure mortgages," the report said. "This results in fast-tracking home ownership for their children, regardless of their ability to make mortgage repayments over the long term." This leaves many parents at risk of selling their properties should their children experience difficulties in mortgage payments.

Housing prices have risen by 141 per cent from 1996 to 2015, hence making home ownership in Australia more challenging. But the government's first-home owners grant, which inflates prices and allows parental guarantees, are perpetuating the illusion of easy access to home ownership by making the risks appear quite manageable and downplaying the jumbo-sized mortgages that homeowners will be paying for decades.

Another reason why young homebuyers are finding it hard to meet mortgage repayments is job insecurity. Unemployment and underemployment rates are rising, making it difficult to save money especially since Australia has one of the highest costs of living in the world.

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