Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Tuesday, 1 November 2016

How long were double-digit home loans around for?

Fact check!

There's been looots of debate about whether Baby Boomers had life 'easy' on social media and blogsites of late!

And in particular whether the spike in home loan rates was merely a temporary scare for the oldies (surely not?!).

I can remember my parents virtually retching at the dinner table about mortgage rates in the "teens", and from my recollection this was definitely not a fleeting concern.

Time for a fact check, methinks.

I have a very sophisticated way of measuring home loan stress, by the way.

There are basically two stress-inducing mortgage rate measurements to watch out for: there are eye-watering levels (above about 9 per cent standard variable), and then there are serious nosebleed levels (from 13 per cent upwards).

Between July 1974 and May 1996 standard variable rates were tracking at or around double digit levels in Australia, with a couple of blips whereby home loans were available at around 9 per cent. 

So that's a 22-years stretch where home loan rates were at abnormally high or eye-watering levels.

More pertinently, the notion that interest rates were at nosebleed levels just for a momentary blip is an out-and-out furphy.

In fact, home loan rates were stuck in the stratosphere between 13 per cent and 17 per cent for six full years between September 1985 and September 1991, with no guarantees for mortgagees that things would ever get easier. 

Business loans were issued at rates of 20 to 21 per cent at that time - sending many a good businessman to the wall - while credit cards debt were charged mercilessly at 23 to 24 per cent. 

Today's standard variable rate is 5 per cent, and the "mortgage managers" basic variable as reported by the Reserve Bank of Australia is 4.15 per cent.

And if you shop around, you may be able to find variable rates from around 3.6 per cent.