how does a falling economy cause people to default on their house mortgages, if their loan amount and income stay the same?
In: Economics
The full duration fixed mortgage seems to be a US phenomenon.
In other anglophone countries (I can speak for NZ, UK & Australia) mortgages are only fixable for the first few years.
After that they move up or down with the central banks interest rate.
In Australia in the last 3 years central bank rates have meant that unfixed mortgages have pretty much tripled in that time.
There are people coming off the fixed rates every month and even though they’ve seen it coming for years it’s still going to be incredibly difficult to navigate.
House prices here (generally) are still going up and up so they might have some equity to remortgage with as they exit the fixed period but some will end up defaulting.
Others pull back on spending which is the central bank’s intention in order to reduce inflation but it’s a sledgehammer to crack a nut and some people are going to get hurt.
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