Fitch warns on home debt

Fitch Ratings has warned on Australian households' debt saying that residential property has never been so vulnerable to an economic downturn. In a report entitled “The bigger they are the harder they fall: Australian residential property prices”, Fitch says that the increases in house prices over the past two years may have reached unsustainable levels.

Australians' household debt-to-income ratio is now running at 110 per cent, with total debt at $540 billion. In terms of indebtedness, Australian consumers are now on a par with those in the US and the UK. And with household debt-servicing levels at an all-time high, any downturn in employment or increase in interest rates means the property market is highly exposed, Fitch states.

Fitch says the residential property market has been driven by banks and other lending institutions providing cheap loans. Average house prices have risen over the past 10 years to a multiple of seven times average earnings, up from 4.5 times.