The Australian Mortgage Crisis: What Nine Interest Rate Hikes Mean for Households

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With potentially 25 per cent of households already in mortgage distress and another 800,000 facing significant loan increases this year due to expiring fixed-term loans, experts are exploring ways to assist those affected.

With the Reserve Bank’s ninth consecutive interest rate increase, homeowners are bracing themselves for rising mortgage repayments while financial counsellors urge them to prepare for possible financial strain.

Australian Mortgage Crisis

When homeowners commit over 30 per cent of their pre-tax income towards mortgage payments, they enter the realm of mortgage stress.

It means such a significant amount of overall income going to just putting a roof over your head,” says Theo Chambers, chief executive of Shore Financial.

It means that homeowners must make hard financial choices, according to Deb Shroot, a financial counsellor. Even essential costs such as insurance can be the first ones sacrificed to save money.

People bought properties because they were told that rates would stay that low for years,” Chambers says.

In May 2022, the Reserve Bank of Australia (RBA) took action to combat rising inflation by steadily raising interest rates. The current official cash rate stands at a 2012 high of 3.35 per cent, and further hikes are needed in subsequent months if we want to rein in currently untamed 7.8 per cent inflation – far exceeding the bank’s 2 per cent to 3 per cent goal.

“That’s probably the biggest wildcard. It is the fact that interest rates have increased by a lot more, and a lot faster and earlier, than what anyone was thinking,” says Tim Lawless, research director at CoreLogic. 

Mortgage Stress Australia

RateCity says the average borrowers with $500k and $750k loans have been paying an additional $908 and $1,362 a month since May when the official interest rate started increasing. These considerable amounts can add up over time.

We are expecting that [the rate of mortgage stress] will push higher into 2023. Partly because of higher interest rates, but also because of the cost of living,” Lawless said.

This year, the RBA anticipates that over 800,000 homes will shift from fixed rates to more expensive variable ones.

That is adjusting from around a 2 per cent mortgage rate to something closer to the mid-fives. We should expect that mortgage distress is going to become more pronounced through the year,” Lawless says.

Shroot emphasises that homeowners should contact lenders as soon as possible for assistance.

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