RBA warns many first home owners who used grants may now be vulnerable

FIRST home owners who bought property with the help of Government grants are vulnerable to rising rates, the RBA warns.

RBA Ric Battellino

THE Reserve Bank has warned many first home owners who bought into the market with the help of generous federal government assistance may now be vulnerable to rising interest rates.

RBA deputy governor Ric Battellino said today there were concerns that buyers who bought into the market in 2009, when the federal Government grant was increased, may have over-committed themselves, The Australian reports.

Amid warnings of at least one interest rate rise by the end of the year, Mr Battellino said there were pockets of mortgage stress across the nation.

He said these had been concentrated in western Sydney, but more recently parts of Queensland and Western Australia were showing increases in loan arrears as some buyers who entered at the height of the boom struggled to make repayments.

In a global financial crisis stimulus measure, former prime minister Kevin Rudd lifted the first home buyers grant from late 2008 to $14,000 for an established home and $21,000 for new homes.

“The concern is that some of these may have over-committed themselves financially in order to enter the market, and are now vulnerable to rising interest rates," Mr Battellino said in a speech today,

"This group bears close watching but, so far at least, first-home owners do not seem to be disproportionately represented in loan arrears."

Read more on this story at The Australian.