The death of personal responsibility

Australian mortgage repayments: signaling the death of personal responsibility

The rising number of individuals seeking to blame the government for their struggling with mortgage repayments signals the death of people taking responsibility for their own choices.

It seems that every day there’s another story in the paper or on the news detailing the difficulties of Australian families battling to meet their mortgage repayments. On recent figures, apparently one in four Australian households with a mortgage is struggling to meet repayments.

This media attention comes despite the Australian economy showing all the signs of being one of the strongest economic periods in our history: near record low interest rates, sustained growth and almost full employment.

Given that we’re experiencing such excellent economic conditions, why do these stories on families battling to make mortgage repayments dominate our media attention?

Coupled with these stories is the astounding impact we’ve seen on the polls of late, with a staggering number of Australians blaming the Howard Government for their home mortgage problems. In response to the polls, Kevin Rudd has decided to, surprise surprise, hold another summit into housing affordability.

But why? What fault is it of the Howard Government that Australians, able to borrow more because of excellent economic conditions coupled with low interest rates, have decided to borrow too much and now find that their purses just won’t stretch to cover their McMansions, new cars and overseas holidays?

The fault of mortgagors increasingly struggling to meet their repayments rests not with the Howard Government at all, but with the borrower.

The baby boomers are now sitting very pretty on their invested nest eggs thanks to the superb performance of the Australian stock market and are enjoying the fact that housing affordability is through the roof (excuse the pun). When they bought their homes, interest rates were more than three times the rates that today’s borrowers pay. They made it work by choosing more conservative houses, perhaps a smaller house in a less-favoured area, and by budgeting in other areas of their lives.

Today, however, there has never been a better time to borrow if you’re a young family, or a single person aiming to get into the property market. Housing affordability might be down - that’s just the consequence of high demand in a booming economy flush with money - but the ability to get into the market as a borrower due to lower rates has never been easier. Why, then, is it such a struggle for today’s borrowers?

The problem is that people have simply taken on too much debt. As a Moody’s report outlined in March of this year (“Bad debt on the rise among home loan borrowers”, March 8, 2007, Sydney Morning Herald) “the availability of ‘easy money’ and a relaxation of lending rules had led to many Australian households incurring high levels of debt that were out of line with their ability to repay”.

In seeking a particular lifestyle or a new house while still maintaining the life the mortgagor had before taking out their loan, the household budget has just been stretched too far. People have bitten off more than they can chew.