The property market in Australia was booming. Rents were high, interest payments were low and apartments were skyrocketing in value every month. Bricks and mortar, her friends told her - you cannot go wrong.

Now, though, it is not so rosy. A freelance marketing analyst, Ms Martin, 37, who is single, has recently lost a couple of major clients. Paying the new mortgage, as well as the A$130,000 debt on the flat she lives in, is becoming increasingly difficult.

'I'm really worried,' she said. 'If I sold the flat today I would probably only get A$600,000. When you take into account all the other costs I paid like stamp duty and transfer fees, I'd be making a loss of $100,000.'

Many Australians are in the same predicament.

House prices in Melbourne and Sydney rose 12 per cent last year, while gains in other cities were even more impressive: 45 per cent in Hobart, 27 per cent in Brisbane and 30 per cent in Canberra.

Senior financial analyst Craig James, with the Commonwealth Bank, said: 'The simple reason why Australians are borrowing freely is that times are good. Stellar gains in house prices have delivered wealth gains. Unemployment stands at 22-year lows and wage gains continue to outpace prices. It makes sense to borrow in the good times.'

But there are now very real fears that the housing bubble could burst, plunging thousands of Australians into a nightmare of debt and negative equity.

Already there have been two interest rate rises since November, bringing the rate to 5.25 per cent. More are expected in the coming weeks.

Some real estate agents described January as their slowest month in 10 years. 'Some property owners find themselves in a negative equity position with their loan worth more than their home,' said Paul Clitheroe, director of a financial planning firm, ipac. 'It's something many thought impossible when they bought in at the height of the property frenzy.'

In Sydney, the average homeowner is spending 43 per cent of their weekly wage on repaying their mortgage, compared with a historical average of just 25 per cent. And as interest rates have risen, some families have found it impossible to keep up with their mortgage payments.

Financial counsellors such as Marie Stivala expect a wave of defaulters in the year ahead. It is not just property that people are rushing to buy. A report out this week showed that Australians are using their credit cards at record levels, further swelling household debt.

Figures released by the Reserve Bank of Australia showed that between November and December, overall credit card debt leapt A$947 million to $26.4 billion, the largest single monthly rise since January 2002.

Australia now has one of the highest debt-to-income ratios in the developed world.

In retrospect, Ms Martin thinks she should have paid off the mortgage on her existing apartment and steered clear of the investment property altogether.

'I was thinking of changing careers but now I can't because I'm saddled with this big debt. I feel trapped,' she said.