 According to predictions from the latest data produced by Fujitsu Consulting and JP Morgan, almost one million households will suffer from mortgage stress by September and of those under severe stress, half will lose their homes. Property prices are also set to plummet by as much as 25 per cent.
"We've got all these things coming together: global trends of recession in the US and potentially in Europe; the credit crunch continuing to lift rates for consumers and also to banks and business; we have [housing] affordability at its lowest level and debt as high as it's ever been. I think all of these things together are creating the perfect storm," says Martin North, the managing consulting director of Fujitsu Consulting. The bad news comes as no surprise to David Tennant, the head of Care, a financial counselling service in Canberra that is at the front line of the debt crisis. His service is receiving calls for assistance with mortgage foreclosures several times a week. A decade ago it would take one or two a year.
"For most of the past 10 years we've been saying to just about anyone who'll listen that the accumulation of debt is unsustainable and will end badly," he says. "It's only in the past six to 12 months that there's been a broader recognition there was substance to those warnings. The crisis we were predicting has already arrived."
Fujitsu research also shows that borrowers under severe mortgage stress who attempt to refinance their way out of trouble will actually increase the liklihood of losing their home. Banks are getting tough on defaults and are moving to repossess and sell properties in a shorter period of time.
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