What Happens When The Property Bubble Bursts?

If you have a mortgage life is pretty good financially at the moment!

Rates are the lowest they have ever been in a generation, property values are on the increase and providing your Loan to Value Ratio (LVR) is below 80% access to money is relatively easy.

But what if the market turns and the property bubble bursts?

11442058625_5223427501_b

History has shown us that there are always up and down periods in the markets so if mortgage rates start increasing so do your mortgage payments. This may not affect your lending immediately as your mortgage may be locked in for another 2 or 3 years but during this period rates may move considerably in an upward trend. This could leave you facing a massive increase in your mortgage servicing.

The Global Financial Crisis took financial markets and banks by surprise back in 2008 and the markets are still recovering even today. The point I’m making is that we don’t know yet what may cause the next meltdown but it will happen.

Look at what is going on in Britain at the moment. They have just exited the European Union and this has caused chaos in the financial markets. Should other members of the EU decide to follow suit then we could have another meltdown on our hands.

Have a think about how this could affect you. Do you have a mortgage, investments or superannuation? They would all be affected to some degree.

rising-interest-rates-road-sign

When mortgage rates start to rise and with over inflated Government Valuations there may be a lot of houses come on the market with people not being able to service their lending. Investors have left the market as rates of return on property are not as good anymore so money is invested in equities and so the buyers dry up.

The vendors still need the maximum value on their property to repay the lenders so if the buyers aren’t there then it will become a buyer’s market and we could see valuations do a u-turn and a lot of people going into negative equity.
If you are affected then how do you go about mitigating your personal risk?

Borrowing what you can afford is another must in the current environment. This is where a good mortgage plan and structure can assist you greatly. Spreading the borrowing terms from 1 – 5 years lessens the chance of a big increase in your monthly mortgage payments.

The situation you need to try and avoid is having everything fixed and coming off term for the bulk of your mortgage at the same time. If rates move up then you could find yourself with chunky increase! If they move significantly then you may not be able to meet your repayments.

Sometimes it’s not all just about finding the lowest rate around but getting the right advice when you are hunting for the best deal.

At Lee Mason Mortgages & Insurance the advice we provide to you is based on risk awareness and developing an understanding of how you are able to better manage your risk. Our door is always open to you and the advice is always free.

21 thoughts on “What Happens When The Property Bubble Bursts?

Leave a Reply

Your email address will not be published.