Following on from yesterday’s story on the OECD’s recommendation that the Reserve Bank of Australia (RBA
) increase its cash rate to encourage economic growth, new research has revealed that a quarter of Australian Millennial mortgage holders are extremely concerned about the impact a potential 1.5% interest rate increase would have on their ability to service their loan.
The RFi research, commissioned by Australian Credit Bureau, Experian, surveyed over 1,500 Australians and found that younger mortgage holders are far more worried about a rate hike than other generations.
26% of Millennials (18-34yo) and 26% of Gen X (35-55yo) responded to the hypothetical scenario in which rates rose by 1.5% by saying they were ‘extremely concerned’ about their ‘ongoing ability to make mortgage repayments’. By contrast, only 10% of Baby Boomers mirrored this response.
Managing director of Experian Australia/NZ, Suzanne Steele, told Australian Broker
that the results are of particular concern, especially given Millennials as a group are the generation most struggling to get into the property market.
Following Shadow Treasurer Chris Bowen's address at the National Press Club yesterday, LoanDolphin’s CEO, Ranin Mendis, also weighed in on the interest rate rise discussion, commenting on the impact Australia losing its AAA credit rating could have on borrowers.
“…The implications of Australia losing its AAA credit rating are concerning. If our banks receive a follow-on downgrade there is the very real possibility that the Australian households would feel the pain from higher mortgage costs,” he said.
“I believe that we will see a steady increase in mortgage rates in 2017 as banks face stiffer competition globally. This would have a flow on affect to property prices and we could see a slowing in growth.”
RFi's research indicates that Millennials are the generation with the greatest debt burden – approximately $428,000 if possessing a mortgage, credit card or personal loan - and are also most likely to miss repayments and feel financially stressed. 18-34 year olds have applied for more than twice as many credit cards, mortgages and personal loans as the average Generation X or Baby Boomer in the last 12 months, and they are also the most likely to be declined in their credit applications.
22% of Generation Y respondents said they have been unable to make a mortgage repayment in the last 12 months, which is twice as many as the overall market average of 11%.
These findings indicate that many younger Australians are experiencing significant financial stress, and that they are borrowing right up to their limit in order to get into the property market, which may add fuel to the fire of the ongoing Australian housing affordability debate.