While most home owners will feel the squeeze of today’s expected rate rise, many will not merely be cutting back on luxuries.

That is, of course, if they’re lucky enough not to be one of up to 300,000 Australian households expected to default on their home loans in 2008.

Crikey lists some of the ingredients turning an interest rate rise into a soggy pudding.

First and foremost, location

Australians feeling the most “mortgage stress” live on the suburban fringe. These areas usually have limited public transport, making residents car dependent and more vulnerable to fuel price rises too. If petrol rises above $1.50 per litre in 2008, households will be spending $9 extra per week on petrol than in 2007.

Add one cup of increased living costs

Statistics show that the average Victorian adult is $3,181 worse off in 2008 than they were in 2007 — or $61.21 a week — with grocery bills alone increasing by up to $1,300. The average Australian household also spends more than three months’ worth of its disposable income on credit card debt.

Mix in a dash of uneven economic growth

The City Futures Research Centre revealed that median income is barely keeping up with inflation in some Sydney suburbs. Median mortgage payments in Bankstown cost 42.1% of average income, up 7.8% of from 2001, and yet property values in Bankstown are decreasing by about $349 a week. 

Some more negative property growth

Australian Property Monitors found that while housing prices in Sydney’s affluent eastern suburbs increased in 2006, prices in the western suburbs decreased by an average 4%. Houses in parts of southern Sydney are thought to be losing up to $444 per week in value. A similar slump in the price of over-valued and over-mortgaged properties in the US was one of the trigger factors in the current US sub-prime crisis.

And there you have it: a big old mess

JP Morgan and Fujitsu Consulting found that 750,000 home owners will experience “mortgage stress” in 2008, and that 6% may default on loans this year.  Urban-fringe dwellers are expected to be worst affected with mortgage defaults in the suburban fringe increasing by 42.3% in the 2006-7 financial year. 

In 2004, those in the lowest 40% of income ranges could afford less than 5% of housing for sale in Australia. Doesn’t look like the statistic’s set to become more balanced any time soon.

A variation on the recipe: the rental market

As the cost of buying a home has increased, rental costs have also soared. Demand is so high that some house inspections in Sydney in 2007 attracted more than 100 potential tenants and average rent increased by 14% to $400 per week. 1.8 million Australians currently rent homes, a figure that is expected to increase to 3.3 million by 2045, by which time the Commonwealth Rent Assistance program, which currently spends $2 billion per annum on assistance, will be forking out $5 billion yearly.