As any home owner would know we are now facing the prospect of increasing interest rates with little or no end in sight.

We also know that these interest rate hikes are fueled by debt in general, not just by principle debt on the family home.

As a suggestion I would like to see a scheeme introduced whereby home owners who borrow against the equity in thier homes to buy good and services that are NON-ASSETT based, e.g cars, boats and holidays, have an increased interest rate for such borrowings.

You see anyone who has purchased a home between 1999 and 2007 has seen a huge increase in thier equity. The problem is that many of these people have drawn upon this equity for non-assett purchases, resulting in higher debt to value ratios.

I feel that if these loans attracted a higher interest rate that this would be a suficient deterent.
In the case where this type of borrowing occurrs the additional interest paid could then be either paid into consolidated revenue, used as a compulsory reduction of the home loan or channeled into the home owners superanuation fund. Either way it would not go to the financial institution.
I would like opinions on this topic and perhaps it may be something that can be suggested to the goverments.

“that are NON-ASSETT based, e.g cars, boats and holidays, have an increased interest rate for such borrowings.”

Any given level of borrowings and Interest rates are determined by the quality of the security, the historic performance of the borrower and the borrowers capacity to repay (the 3 "C"s of borrower assessment - collateral, character and capacity).

None of that qualifies how the sum borrowed will be deployed.

It would be paternalistic in the extreme for any lender to demand to tell a borrower, who otherwise qualifies for a loan, how they should spend the money borrowed, although some lenders pretend to.

As for non-asset items like cars, boats, holidays etc. whilst those items do not produce a long term economic return, I would think the riskiest thing a borrower could do, even riskier than putting money into discretionary expenditure, was to borrow against a real estate asset and use the funds jointly to invest in supposedly growth accumulating assets like shares.

The point, shares are volatile. Whilst they go up, they also go down. When they go down the lender has the right to make a margin call and require the borrower increase his contribution to cover the specified margin. This can force the borrower to sell his property and liquidate everything to payoff the under-covered debt. That will cause more pain and grief than the interest one would pay on a car or holiday.

I met a family who lost the entire family trust by securing a loan and using the proceeds to invest into shares, in 1987. The margin calls wiped them out and they had to sell their homes and their business to cover the debt default.

Ultimately, when it becomes a choice between an emotional want and a rational need, the emotion will always prevail.

Government is there to reflect the will of the electorate. It is not there to dictate the principles of common sense or protect people from their own folly.

Yes col I agree with you on some points, however many home owners entered the market somewhat by default whereby they were given a 1st home owners grant, either $7K or $14K.

In many cases this grant was used a the sole deposit on thier new home. Lets face it, many of them could not save enough for a deposit without government intervention.

As for your comment on the strength of the borrower, of cause you are correct in what you say, however it is not the astute borrower that is in trouble, it is the inexperienced one who are in trouble and they need help and or guidence.

Finnaly with regards to the share market.

Yes the markets are voletile at times however history shows that shares out perform property in the long run and they are liquid assetts. You have to have sound knowledge to succeed here.

The key to any investments is not to have all your eggs in one basket.

Dumb idea. People would just spend their income on disposables and 'account' thier borrowings to assets. Too communist, too much social engineering, too much paperwork.