Mortgage default in Australia: nature, causes and social and economic impacts
Summary
This research examines the sources, nature and implications of mortgage default among Australian home owners. The sub-prime crisis in the US has starkly illustrated the connection between housing and economic factors. In 2010, the number of households in severe mortgage stress could exceed 250,000, based on Fujitsu estimates. The survey cohort of households receiving claims of possession from mortgage lenders was characterised by: a fairly even age spread between 35 and 54 years, with relatively small numbers of younger and older defaulters; low-to-moderate incomes; and conventional motivations for home ownership – e.g. security, pride, investment value. Defaulting households generally: had high initial loan-to-value ratios (LVRs), varying positively with income; paid relatively high mortgage interest rates; began experiencing difficulties more than one-year after taking on their mortgages; and are more likely than all Australian purchasing home owners to borrow from sources other than the banks. Only a minority of severely stressed mortgagors surveyed sought independent financial advice. Those who sought advice early had more options than those who waited, and accumulated less debt. Independent financial advice for borrowers, particularly those taking out their first loan will help to reduce the incidence of mortgage default.
Project Number: 30529
Research Theme: Home_ownership
Project Leader: Berry, Mike
Funding Year: 2008
Research Centre: RMIT-NATSEM
Research & Policy Bulletin
Issue 128: The great Australian nightmare: mortgage default and repossession
Mortgage default has long term impacts on the financial wellbeing of households including bankruptcy, drawing on superannuation savings, and high levels of debt even after the sale of the house. Better access by borrowers to financial advice and mortgage relief assistance, as well as stricter lending standards and better consideration of illness and hardship by lenders, would reduce rates of default
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More Information
Positioning Paper: No. 114: Mortgage default in Australia: nature, causes and social and economic impacts
865 KB PDF Document
Final Report: No. 145: Mortgage default in Australia: nature, causes and social and economic Impacts
2.3 MB PDF Document
Research and Policy Bulletin: Issue 128: The great Australian nightmare: mortgage default and repossession
279 KB PDF Document
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