Rising House Prices Threaten Stability Of Australian Financial System

The International Monetary Fund has warned that Australian household debt may be rising too quickly and could present a risk to the Australian financial system.

The rising household debt is believed to be as a direct result of sky-rocketing house prices which is soon predicted to pose an issue for homeowners and banks.

According to the IMF large mortgages are proving to be a direct threat to the stability of our financial system and are urging regulators to tighten up their lending controls.  

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According to Business Insider, the country’s household debt is among the “highest in the world” with continuously increasing house prices only adding to the problem, with analysts predicting prices to hit record highs later in the year.

Experts are concerned that liberal lending could backfire on banks and homeowners if the country were to fall into another recession.  

Treasurer Josh Frydenberg has played down these concerns claiming that household assets are worth more than household debt.

While Mr Frydenberg believes the household debt is not of high concern, the IMF fear the increase in lending with stagnant income growth could create issues for banks.

To remedy the debt, homeowners may be forced to sell their properties with some unable to meet the higher price it was purchased for, particularly if the value of the home has decreased over time.

This means the homeowners would be unable to fulfil the debt entirely which could result in banks incurring a loss.  

This is then predicted to have an impact on the country’s economy as a whole as consumption lessens alongside declining house prices.

The IMF are now calling for lenders to tighten up lending controls.

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