Who wants to be a millionaire?

Every time I start to get blase about Australia's crazy housing market, something happens to blast me out of my complacency.

Kate was at the ATM today and, just for fun, went in to ask how much we could borrow. The answer they threw back was A$1.2 million. In case you think that means we're rolling in it, you'd be wrong. Certainly we're doing OK: in Australia, our household income is probably towards the upper end of the income distribution. A sensible fiscal policy would see us paying more in taxes. But we're not A$1.2-million-loan rich; not even close.

That loan, based on a quick look at a few mortgage calculators, would likely eat up 70% of our combined net income--even at current historically low interest rates. We'd have to cut our current non-housing spending by nearly half, and that's before accounting for council tax, water rates, maintenance costs, and the compulsory mortgage insurance we'd be taking on. Am I alone in thinking this is insane?

Furthermore, we'd only need to provide a few months' worth of pay slips to get the bank's approval--they wouldn't want to pry into our bank statements to see how we'd cope with such a drastic drop in disposable income.

Now I can actually understand why a prudent bank might make that loan. We have an unusually large amount of savings--sufficient for a deposit of more than 20% of the house price, although not with a loan that size. If we default on the loan, as we surely would, the bank gets the house. And assuming the percentage fall in the housing market is a bit less than the value of the deposit, they'd likely still be in the black once they come to sell it.

But I can't understand why an honest bank would make a loan on such easy terms, or why a prudent regulator would permit it. Unless these easy terms being described are just a marketing gimmick to hook us in before offering a more conservative mortgage--which would be dodgy trade practice in its own right--this bank is showing deliberate negligence about their borrowers' ability to pay up. That's fine in terms of their own interests, but in terms of their borrowers' interests, it's really just a high-class variety of loan sharking: conning people into debts they can't pay off by exploiting their shaky understanding of personal finance and compound interest.

You can be sure that if we took out the loan and did default, the bank would be quick to trot out the same mantra we've heard from creditors everywhere since 2008: "These people were greedy and borrowed more than they could afford. We're the innocent victims and need to be paid in full."

But when I think about a personal loan, I see an expert and a novice sitting together in a room. In the case of a mortgage, the novice homeowner will likely carry out this negotiation only a few times in their entire life; the expert bankers will be doing it hundreds of times a week, or more.

Most of us have only the dimmest ideas of how our incomes and living costs change over the course of a lifetime; mortgage lenders, on the other hand, have vast research departments with decades of data about this stuff. I'm sure they're pretty quick to trot this information out, once borrowers go delinquent and they need to modify the loan. The studied indifference about doing so in advance is just immoral.