Falls in the amount of mortgages being approved in Australia have lead experts to believe that Australia is in a Mortgage Recession. In a report given by the Australian Finance Group (AFG) in June it has been said that there had been a fall in mortgage applications and approvals. According to them, there has been a fall of 9.2 per cent compared to the month of May. By the end of June it declined to 22 per cent thus declining the sales percentage to 31.5 per cent in comparison to the previous year.

The report by AFG (which has 10 per cent of brokerage market) says that there has been negative growth for the past two years. This data suggests that the market is in mortgage recession, after sales fell from 23,143 in the end of December to 20,543 in the month of March and further down to 19,755 in June. This mortgage recession is partly caused by the sub-prime crisis in the United States causing the cost of money to greatly increase. Interest rates are high world wide which is another factor contributing to the current mortgage recession. From this, the borrowers don’t go in for major purchases. The mortgages sold by the AFG have come down to $2 billion from $2.6 billion within a year.

The mortgage recession has forced the Reserve Bank of Australia to increase the interest rate four times, which comes to 7.25 per cent, the highest ever since the past 12 years. The commercial banks have also raised their interest rates independently to compensate their funding costs. It is said that the interest rates may increased again by the Reserve Bank of Australia if the decline in mortgage continues at current rates. The hope that the mortgage recession may be bottomed out is being closely watched to achieve unassuming growth. The statistics of the AFG shows that there has been an increase of 7.5 per cent in mortgage size this June compared with the previous year. The major increase was in South Australia and Queensland which was 13.5 per cent and 11.7 per cent respectively. New South Wales followed with mortgage size growth of 7.6 per cent, then Victoria with 6.1 per cent and South Australia with 2.6 per cent. However the growth was stable in Western Australia.

Some market watchers says that the overall rise in the mortgage size reflect on large loans at the wealthy part of mortgage market. The growth of the market is because of some fair buyers investing in properties. Persons captivating small and medium size mortgages cannot meet the expenses. Some of them had taken fixed rate loans, thinking that the interest rate will remain steady or may decrease. Demand for standard variable loans rose from 39.9 per cent to 40.8 per cent. The proportion taking fixed loans fell to 11.5 per cent in June from 13.7 per cent in May. Hence the mortgage recession in Australia has been an obstacle for the growth of the mortgage industry. However, it is hopeful that the Australia in mortgage recession could be restricted thus giving way to Australia’s economic development.