First home buyers stressed out

Over the past 18 months there has been a flood of first home buyers into the market, encouraged by big government grants and low interest rates. Many of those people took out big loans and are now in danger of falling behind with the mortgage repayments because interest rates and therefore repayments are rising.

JPMorgan and Fujitsu Consulting say first home owners are borrowing on average about $280,000, the same as established borrowers, who usually earn much more income than first buyers. ”The higher gearing tolerance of first owners results in greater sensitivity to rising interest rates,” says JPMorgan analyst Scott Manning.

Mr Manning says if rates continue to rise first-home owners will be committing about half of their after-tax income to interest servicing compared to other borrowers who will see their servicing of a mortgage rise to 33 per cent of their after-tax income.

Source: The Age