40 or 50 year home loan

Back in May 06 I wrote that the US has introduced the 50 year home loan

Well here it is now reported Westpac and the Commonwealth Bank confirmed they would consider introducing mortgages over 40 or even 50 years.

As I said back then the 40 or 50 year home loan is effectively an interest only home loan. The borrower is hardly making any dent into principal repayments on an annual basis. You better hope that the capital value of your house goes up. Though that is not always the case and is not guaranteed.

And as is starting to be reported, there is more and more middle class default and bankruptcy petitions. Bankruptcy is no longer the reserve for the lower income or failed entrepenuer.

The 50 year mortgage does not help the Borrower ever get ahead in reducing the principal owing on their mortgage and creating a buffer against unexpected hard times. Combine this with 95% Loans, where are we heading?

Am I being overally pessimistic? Interest only loans have been popular for a long time with investors. But for a long time now, first home buyers are buying into an expensive market it may appear a godsend until things start to go pear shaped. A once often quoted rule was banks would lend you 3 times your annual earnings. Now it might be 4 times. But with, say Sydney as an example, the cost of the median house is 8 times your average annual earnings. Things aint easy.