Australia 'faces sub-prime home loan crisis'

The Australian economy could take a major nosedive in the coming months as millions of first-home buyers risk bankruptcy in a bid to take advantage of low-interest home loans and property grants.

So warns prominent economist Professor Steve Keen, who has told the Sunday Telegraph that the country faces its own "lite" version of the sub-prime crisis which crippled the US housing industry and set off the international financial crisis.

He said that while economists were unanimous in recognising that the crisis was caused by people borrowing too much on home loans and credit cards they couldn’t afford, prime minister Rudd and the gang at the Reserve Bank were in essence encouraging the poorest parts of society to saddle themselves up with even more debt.

Gerard Minack, chief economist at Morgan Stanley, added: "I don’t care what rate you’re paying, if you have a mortgage five times your income and you lose your job, you’re toast."

Rudd has recently insisted that the deadline on the extension of the first-home buyers grant will not be extended past June, which may put some people off entering the market.

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