The Labor party's spending spree is now coming home to roost -- and shitting on the battlers
Particularly first home buyers and would-be first home buyers
First home buyers have just cause to feel betrayed by the Rudd-Gillard government as they struggle under the strain of seven consecutive interest rate rises which have been exacerbated by loose fiscal policy.
After the amount of Saturday's Kelly and Andrew had spent thumping the pavement looking for a house, they felt ready to kill the person who snapped up this one. Photo: News.com.au
A disturbing new survey by Mortgage Choice has found that 10 per cent of first home buyers, who purchased their homes in the past two years, have either sold their homes or are considering selling because of financial hardship, caused by interest rate hikes.
The survey also found that another 6 per cent would sell if interest rates climbed a further one per cent, while another 14 per cent would sell if they rose another 1.5 per cent.
Many of these first home buyers were lured into the market through generous first home buyer grants at a time of historically low interest rates.
The Rudd-Gillard Government was more than happy to artificially stimulate the lower end of the housing market so as to give the impression that they had done a wonderful job staving off the effects of the GFC.
Of course they didn't alert all the first home buyers they suckered about the inevitable interest rate rises that would follow their totally over-the-top $87 billion stimulus spend.
The seven consecutive interest rate rises included four last year alone. We now have by far the highest interest rates in the developed world with a current cash rate of 4.75 per cent whereas Canada is at 1 per cent, Hong Kong .5 per cent, UK .5 per cent and Japan .1 per cent.
As a consequence, the current average variable home loan rate is around 7.7 per cent, which Loan Market says has resulted in first home buyers becoming an "endangered species". By comparison first home buyers were dominant in the market in 2009 due to the beefed up first home buyer incentives and the historically low interest rates.
While first home buyers are particularly vulnerable, mortgage stress of course extends to those on higher incomes, who have upgraded their homes on the strength of increased equity built up as property prices boomed.
Growth has now certainly flattened and prices have dipped in some parts, although the economists remain optimistic that we will avoid a US-style property market crash. The last thing we need is the nightmare scenario where home owners are forced to sell properties for less than they paid for them and for less than they owe.
The irony of the difficult current environment is how Kevin Rudd and Julia Gillard were elected in 2007 on a promise to ease cost of living pressures for "working families" and to keep downward pressure on interest rates.
Their embarrassing Fuel Watch and Grocery Watch schemes have become the hallmarks of Labor's dismal attempts to deliver on their pledge.
Instead families have copped a double whammy because not only have interest rates added about $6,000 a year in repayments to the typical mortgage, but cost of living continues to soar, with electricity prices up almost 40 per cent in three years, water up 27 per cent and rates up 15 per cent.
Latest ABS statistics in fact show that living costs are up 4.5 per cent compared to the official inflation rate of 2.6 per cent. Wages are simply not keeping pace with mounting household expenses.
Add to this the further threat posed to household budgets by Julia Gillard's new carbon tax, including annual increases in power bills of at least $300 and 6.5 cents extra per litre of petrol.
What we have seen is a government that has dudded those who are most financially vulnerable to interest rate hikes and increases in everyday living costs.
The most frustrating thing is how Kevin Rudd and now Julia Gillard have ignored repeated and sustained warnings to rein in spending and borrowing and to pay off debt. And the warnings haven't just come from the Coalition, they have come from Treasury, Finance, the RBA, economists and business.
Reserve Bank board member Donald McGauchie took the extraordinary step of rebuking the government for its loose fiscal policy. He said "we are spending money on fiscal stimulus and other things we shouldn't be spending money on and that means higher interest rates than we would otherwise have."
This government simply lacks the discipline to tighten its belt, to stop all the needless spending and to trim the fat in the budget. Instead we have the perverse situation where fiscal policy is working at direct odds with monetary policy.
Until this government starts living within its means, first home buyers and other struggling households will continue to pay the price.