Landlord boom poses risk for Aussie debts

The boom in Australian buy-to-let mortgages that has helped fuel record household borrowing could be the next driver of bank bad debts rather than corporate defaults.

While business-loan losses were behind the biggest bad debt cycles in the past three decades, according to a discussion paper from the Reserve Bank of Australia, unprecedented borrowing by individuals and signs that the residential property market is coming off the boil mean that for banks the next one might be different.

Australians’ penchant for investing in real estate has been encouraged by a boom in prices and declining mortgage interest rates that have been driven down by a central bank seeking to ease the nation’s shift away from mining.