Top five vulnerable groups in Australia facing mortgage stress amidst rising interest rates
Australian Borrowers Who Took Out Low-Rate Loans Most at Risk of Mortgage Stress
A recent report by AMP stated that Australians who took out loans when interest rates were at record lows are the most at risk of mortgage stress as house prices are expected to keep falling until September. The report further stated that monthly repayments on a variable mortgage have surged by 42% since May 2022, and Westpac, ANZ, and NAB are expecting three more increases in March, April, and May, which would raise the Reserve Bank cash rate to 4.1%, an 11-year high, from 3.35% now.
Mortgage Repayments on the Rise
With these further increases, Australians with an average $600,000 home loan would see their monthly repayments jump by another $283 to $3,567, marking a 54.7% surge in just a year. AMP senior economist Diana Mousina said these increasing rates would be the hardest hit borrowers who took out loans between 2020 and early 2022. Sydney is the most affected capital city market, with the median house price falling by 14.7% to $1,217,308 in the year to February 2023.
- The Reserve Bank of Australia (RBA) has raised interest rates nine times since May 2022.
- Australian borrowing rates were at a record low of 0.1% before the RBA started hiking in May 2022.
- Monthly mortgage repayments for Australians with an average $600,000 home loan have surged by 42% since May 2022.
- Westpac, ANZ, and NAB expect three more rate increases in March, April, and May.
Australian borrowers who took out loans at record-low rates are at the most risk of mortgage stress as house prices are expected to keep falling until September. In addition, further increases in interest rates will raise monthly mortgage repayments by 54.7%, putting more Australians under financial pressure.
The skyrocketing mortgage repayments and falling house prices could pose a significant risk to Australian homeowners’ financial stability. In addition, as the Australian economy continues to recover from the pandemic, homeowners must start planning for the expected rise in interest rates to avoid falling into mortgage stress.