West Australians are scrambling to refinance their mortgages as rising petrol and grocery prices combined with the burden of high interest rates push households into unsustainable debt.
  
Australian Bureau of Statistics finance figures show refinancing represented 35 per cent of all WA loans in February.
  
A new report compiled by Fujitsu Consulting estimated 120,000 WA homeowners were forced to switch their loans in the past year, the highest proportion in Australia.
  
The national researchers also revealed that homeowners in the west were most likely to use credit cards to support mortgage repayments. Managing director Martin North warned that refinancing might provide some short-term relief but was not a solution for homeowners struggling to repay debts.
  
“Once you have started refinancing you are twice as likely to ultimately have to sell the property,” he said.
  
Mortgage and Finance Association of Australia chief executive Phil Naylor agreed homeowners had to be careful with refinancing. “Seek some good advice to make sure it puts you in a better position,” he said.
  
Homeowners who refinanced had to change their spending habits to avoid going further into debt.
  
Fujitsu Consulting analysed data collected from 26,000 Australian households since 2006 and predicted 750,000 households would suffer debt stress by the middle of this year, with almost half of those under severe stress.
  
“About 62,300 of WA’s 520,000 households are experiencing some form of stress and we predict that will jump to 91,000 by September — and that is without any further interest rate rises,” Mr North said.
 
Young families who extended themselves to join the property market were among those hit hardest by rising interest rates and living expenses, with the number having problems expected to double by September.
  
But Mr Naylor criticised the report findings as highly exaggerated. “This report is presenting the worst-case scenario and there is nothing currently on the scene that indicates this is likely to eventuate,” he said.
  
Mr North said the scale of the problem was hidden because many homeowners struggling with debt would sell before they went bankrupt or banks foreclosed. He warned another 150,000 households in Australia would be pushed into mild mortgage stress with every further 25 basispoint rate rise.
  
ANZ chief economist Saul Eslake said that homebuyers were unlikely to be hit with another interest rate increase after the latest inflation rise but might have to wait another 12 months for a reprieve.
  
The ABS revealed last week the consumer price index grew 1.3 per cent in the March quarter for an annual inflation rate of 4.2 per cent.
  
Aussie Home Loans boss John Symond said the Reserve Bank needed to bolster liquidity within the banking sector to spur competition and drive interest rates lower.
  
“If the RBA and the Government allow liquidity to become rationed, banks will end up upping interest rates on bread-and-butter products, including home loans,” he said.

WA News April 28th 2008