Risky business: A Minskyan analysis of the development of interest-only mortgage lending in Australia

Abstract

Australia’s housing market has boomed through decades of continued economic growth. This boom has fuelled rapid house price rises while increasing financial risks across Australia’s economy. Public and scholarly discourse tends to focus on the need to reform broad economic determinants that have shaped these risks, such as taxation regimes and planning regulations. Less criticism and attention is given to mortgage products that encourage and enable financial risks, such as interest-only mortgages. Interest-only mortgages enable borrowers to pay ‘interest-only’ (and no principal) on a loan for a set period of time. These mortgage products have played an important role in the rise of developed housing markets globally. My research aims to use the work of Minsky to explain and contextualise the role of these interest-only mortgages in Australia’s housing market rise. In doing so, I will demonstrate how Australia’s regulatory regime regarding these financial products has created new systematic financial risks that should be addressed by policymakers.