AN increasing number of home owners are defaulting on their mortgages despite seven years of low interest rates.
The trend is being blamed on job insecurity, redundancy, a rise in low-paid work, small business failure and divorce.
A study by the Australian Housing and Urban Research Institute at RMIT in Melbourne warned any further interest rate rises would make even more borrowers vulnerable to difficulties and default
Co-author of the report, Falling Out of Home Ownership: Mortgage Arrears and Defaults In Australia. Mike Berry, said Australians traditionally had not defaulted on their mortgages. But the research showed that in the 1990s Australians had extended their lifestyle instead of paying off their debt.
"There has been huge increases In consumer debt which resulted in people refinancing their home to pay off short-term debts and then refinancing again to pay for a holiday or wedding," Professor Berry said.
The study also found that, in some instances, people had sold their homes but not recouped enough money through the sale to fully discharge the loan. This also had led to an increase in insurance claims to cover the gap.
In 1994, one major Insurance company had 630 clients in arrears with claims of $7 million. By 1997, that number had soared to 1400 people owing a total of $35 million.
Geoff Munck, director of client services at Worrell Whitehill chartered accountants and insolvency practitioners in Brisbane, said the number of loan defaulters losing their homes had soared in the past five years.
Mr Munck said the research findings were evidenced in Queensland by the number of bankruptcies, which had increased by 25% every year for the past five years. He said there were 8500 bankruptcies in Queensland last year.
"More and more people are defaulting on their loans," Mr Munck said. "The largest cause is people being made redundant. People with very good incomes have had their world turned upside down when they are retrenched — and this is particularly the case in Queensland."
Mr Munck said the ability of people to repay loans also was being affected by the use of credit cards and hire-purchase agreements.
"Australians have still not learned their lesson about credit cards," he said. "They get into a debt spiral and then start robbing Peter to pay Paul for the mortgage until there is no more credit left."
Mr Munck said people often could keep their homes without sacrificing their superannuation through the Debt Free Agency's solvency management programme.
However, Bryan Fitzgerald, the Commonwealth Bank's executive manager for group corporate relations, said the bank had not experienced increased loan defaulting.
Mr Fitzgerald said more than 90% of the bank's borrowers repaid more than their contracted repayment amount each month.
Nick Paten, deputy managing director of Aussie Home Loans, said the main reason home owners went into arrears was over-commitment but also because of business failure by self-employed people.