As consumers find their low interest loans changing into a variable rate, many are now unable to make their payments. It is expected that nearly 3 million homes will have an increase in payments by up to 300 pounds in the next year and property values are quickly declining. This has created incredible instability in the housing markets and many home owners now owe more than their homes are actually worth. It will be nearly impossible for many to be able to avoid foreclosure.
In Australia, the amount of mortgage defaults, even on low interest loans, has gone up 17% over the past twelve months. Once again, the main problem appears to be initially low interest loans that switched over to variable rates that were much higher. Home owners were not prepared for the jump in interest rates, and many who received mortgages over the value of their homes are simply unable to make the new payment amounts. The areas affected the most appear to be near Sydney. Australia’s prime minister commented, “In a low interest rate environment, it’s easy to gear up and buy that dream home and, as interest rates move up together with pressure on petrol prices, for some of the outlying areas they are finding the going tough.”
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