‘Hard times ahead’ for home loan borrowers

The philanthropist said that record house prices, pending oversupply of apartments in some cities, investor lending curbs, and elevated household debt levels, coupled with rising interest rates on mortgages, means that the “writing is on the wall for Australian borrowers”. 

He said: “For most Australians, the family home is the greatest asset, with ownership a key pillar to a comfortable retirement. But record house prices and elevated debt mean that most Australians will be working for longer to clear the heavy mortgage debt load, limiting capacity for investment outside of the home property, which would be necessary to build a retirement nest egg. 

“The banks, for their own commercial reasons are putting up interest rates.” 

Speaking to Mortgage Business, Mr Lambert explained: “The banks put up the rates for various reasons: obviously, the cost of overseas borrowing has gone up in the US and rates here have been generally moving up on a wholesale basis, but [banks are] entitled to do that. 

“You read all the time that house prices in Australia are among the highest in the world and this is partly to do with the current regulation and the supply of credit that has become available. We now have in this country very high borrowing rates and… if interest rates go far enough there are less and less people who [will be able to] afford to buy your property from you when you want to sell it. So generally speaking, rising interest rates means that all asset value — whether that be share market or property market — in principal, falls.” 

Mr Lambert warned that the Labor Party’s reforms of negative gearing and the capital tax discount could further impact demand and supply for property and its value, while the potential expansion of Land Tax as a form of wealth tax could potentially add extra ongoing costs to owning a property. 

“The point is that, for the borrowers that are home owners, the interest they pay is the biggest cost and the biggest expense they’ll ever have and therefore they need to look after themselves, as no one else is going to look after them. They need to be alert and, as the rates go up, check whether there is a better rate available for them. 

“The only person looking after your interest, is you,” he said. 

Mr Lambert, who is a shareholder in the digital loan service LoanDolphin, suggested that borrowers “take action to limit their financial impact” by potentially refinancing their home loans (such as by putting their loan up for auction on LoanDolphin), setting clear targets to pay down mortgages (for example by using budgeting and savings apps), and consider whether holding “excess investment property” is “still an appropriate wealth creation strategy”. 

He told Mortgage Business that those with brokers should "certainly be talking to their broker to see if their rate is appropriate".

[Related: Creating wealth: Australians must take the power back]