Rate hikes could 'increase numbers defaulting'

Rising home loan interest rates would cause a sharp increase in the number of Australian homeowners defaulting on their mortgages, it has been claimed.

According to international analyst Fitch Ratings, any rate increases could also have a negative effect on commercial mortgage holders.

David Carroll, a director in Fitch Rating’s Australian structured finance team, said: "Rates will continue to rise during 2010 and structured finance arrears are likely to trend up."

He added: "The improvement in Australia’s structured finance asset performance, which was experienced during 2009 thanks to historically low interest rates and a resilient economy, is unlikely to continue during 2010."

Fitch Ratings also warned that the ratio of household debt to disposable income in Australia stands at 156 per cent.

According to Loan Market Group executive chairman Sam White, consumers should be prepared for further mortgage rate rises in the coming year.

Mr White said the Reserve Bank of Australia is just waiting for more information before it changes the cash rate again.

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