Should we brace for a financial storm?Credit:Harry Afentoglou
One of the triggers for the GFC was rising defaults from over-leveraged borrowers who were unable to refinance when their honeymoon rates ended. However,the sub-prime lending in the United States before the GFC included large mortgages being given to people without jobs or on minimum wage.
“This is absolutely not ‘sub-prime’ in the US definition but there were people[in Australia] who were being encouraged to get very big loans on the fact that principal&interest was impossible to service but they could service interest-only,” Mr North said.
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“We also know that some interest-only loans were not investors but they are actually first-home buyers encouraged to go in at the top of the market.”