Boom in home equity loans

For the first time, borrowing to fund travel, cars and consumer goods is outstripping new spending on housing, according to the Reserve Bank. Australians are increasingly using the growth in value in their homes to secure borrowings for consumption spending and for other investments.

The practice, called home equity financing, indicates a big shift in borrower behaviour from paying off the mortgage faster. Formerly, spending on new housing outstripped net new borrowing.

Rising housing prices have increased homeowners' equity stakes in their property, increasing perceptions of their wealth and fuelling increased consumption. But it also means a sharp rise in household debt – though the Reserve Bank is not overly concerned on equity withdrawals. Low inflation and interest rates mean most households can service the debts, the RBA says, and interest rates on home loans are considerably lower than rates on credit cards and personal loans.

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