Foreign Investors That Funded Australia Housing Boom Growing Cautious

Foreign lenders get the property jitters

Official figures show our banks now owe overseas investors a record $352.7 billion, equivalent to 27 per cent of the country's entire economic output.

If the global economy recovers strongly that could push interest rates up a lot, and that's a real risk for Australia's because rates are already high and house prices are becoming an issue," said Trevor Greetham, asset allocation director at Fidelity Investments in the UK, which has $3.4 trillion under management.

Analysts said if Mr Greetham and others like him withdraw funding, then our banking system will be plunged into a catastrophic credit crunch. Mortgages will be rationed, minimum deposit sizes will be forced up and property prices are likely to collapse.

Gerard Fitzpatrick, global fixed income portfolio manager for Russell Investments, said he was increasingly cautious about lending to Australian banks.

Speaking from London last week, he cited the recent catastrophe in Ireland, where the house price bubble effectively broke the banks.