HIGH interest rates and property prices are only part of the story behind home-loan defaults, a mortgage insurance company has found. In a study on the contentious question of mortgage stress, the Genworth Financial report found that of the 1 million borrowers it insures, fewer than 5000 had fallen three months behind on their repayments.
Genworth’s country executive, Peter Hall, said this rate of default was within the historical trend of mortgage default rates, reflecting Reserve Bank assessments of mortgage stress.
Although interest rate rises are largely blamed for mortgage stress, Mr Hall said the research showed that unexpected events in borrowers’ lives were more important causes of failures to meet debt repayments.
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“Everyone has kept referring to interest rate rises over the past three years, and yes, that is one category that has affected mortgage delinquency. But it’s not the only category.” The Reserve Bank has said the number of mortgage defaults is low by historical standards, but there are pockets of distress well above the national average. Western Sydney, for example, has arrears rates on loans that are more than double those in the rest of the city.
Consumer advocates say the survey’s measure of mortgage stress overlooks many struggling under the weight of debt who are managing to meet repayments.
The co-chief executive officer of the Consumer Action Law Centre, Carolyn Bond, said mortgages tended to be the last debts borrowers fell behind on. “Someone who hasn’t paid their mortgage for three months is probably in serious mortgage stress,” she said.
The study argued that in 38 per cent of default cases, illness or injury was the main reason. Job loss or a pay cut accounted for 30 per cent. The burden of high debt from rising interest rates and high housing costs was the main cause in 2 per cent of cases, it said.
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By Clancy Yates May 9 2008