More on struggle street as prices, rates rise

THE average size of a home loan has risen by 40pc since 2005, leaving many Australians struggling to meet their repayments.

The number of borrowers in mortgage stress this year is set to rise / AAP

THE average size of a home loan has risen by 40 per cent since 2005, leaving more than half a million Australians struggling to meet their repayments.

The findings, by Fujitsu Consulting, show rising interest rates pushed 218,000 borrowers into severe mortgage stress last month, The Australian reported.

Fujitsu Australia executive director Martin North said that figure was expected to increase to 290,000 by December.

The research group forecasts that house prices will rise by up to 12 per cent around the country over the next year.

"Strong demand for property, fuelled by migration, the re-emergence of property investors and an easing of concerns relating to unemployment, continues to drive the market," Mr North said.

Fujitsu's Mortgage Stress survey found 581,000 households were under pressure to meet repayments last month, compared with a peak of 900,000 in August 2008. However, Mr North said conditions were deteriorating with 673,000 expected to struggle by December.

Hardest hit will be the first-home owners who piled into the housing market on the back of the generous home owners boost scheme, which was phased back in December.

Signs are emerging that many people are being priced out of the property market. Australian Bureau of Statistics figures released this week show loans for new and existing homes fell for the third consecutive month in January.

Housing Industry Association senior economist Ben Phillips said: "Population growth is at record levels, and construction of new housing is lagging badly. The end result is worsening housing affordability and a growing gap between the housing haves and have nots."

Home loans grew at the fastest pace in Western Australia on the back of the resources boom, up from an average $172,300 in December 2004 to $286,300 last December, a rise of 66 per cent. The Northern Territory was not far behind with a rise of 64 per cent to $296,800. NSW had the highest average home loan at $310,000, up 26 per cent from $248,000 five years earlier.

Australians paid out nearly twice as much of their income in mortgage repayments than borrowers in the US and Britain, where prices have fallen and rates remain at emergency lows.

Mortgage stress is traditionally defined as households with 30 per cent or more of their income used to pay the mortgage.

But Fujitsu breaks this into "mild mortgage stress", where repayments are met but spending is reprioritised and more is borrowed on credit cards or is refinanced; and "severe mortgage stress", where households are behind in repayments or even face foreclosure.

More national news in The Australian.