Mortgage risk to spike in 2023 – PEXA

New report explores the impact of rate hikes, steep house prices, and cost of living pressure on recent home buyers

Mortgage risk to spike in 2023 – PEXA


By Mina Martin

A growing number of Australian homeowners are battling significantly increasing pressure on their home loan repayments as interest rates surge, exposing them to greater risk of financial strain, according to new PEXA research.

“The Emerging Mortgage Risk report highlights the extent to which more and more borrowers in Australia are being challenged by the current economic conditions,” said Mike Gill (pictured above), PEXA’s head of research. “With interest rates continuing to rise and the cost of living also squeezing the budgets of households, there has been a pronounced spike in the number of families facing more immediate mortgage risk.

“In addition to these factors, with an estimated 800,000 fixed-rate loans due to expire during 2023 – and reset at a significantly higher cost – it’s easy to see why refinance volumes are at a record high as mortgagees seek to strike a better deal. It’s clear that lending pressure is set to stay in the months ahead.”

The study defined “mortgage risk” as how difficult it is for families – two or more persons who were related by blood, marriage, adoption, step, or fostering, and were residing in the same household – to meet their home loan repayments.

It was calculated by assessing the median monthly home loan repayments as a proportion of the median monthly family income for each postcode, before categorising the risk into low (0-20%), moderate (>20-40%), high (>40-60%), or very high (>60%).

The report found that those families in higher-risk postcodes are being forced to allocate a higher portion of their income to pay their mortgage, with New South Wales feeling the mortgage pinch the most.

By May 2023, 181 postcodes in NSW – that’s nearly half of all suburbs in the state – are set to be classified as being at high mortgage risk.

The majority of the very high-risk postcodes in NSW were located in greater Sydney, led by Northbridge (2063), Dural (2,158), and Avalon Beach (2107). The higher-risk postcodes in the state encompassed both high- and low-income areas. This trend was replicated in Victoria, where Balwyn (3,103), Balwyn North (3,104), and Canterbury (3126) topped the mortgage risk charts.

Nearly 40% of the high-risk postcodes in both NSW and Victoria were from the very high-income postcodes, and around a quarter from the low-income group.

In Queensland, it was the regional postcodes that stood out as being high risk, namely Noosaville (4,566), Maleny (4,552), and Tallebudgera (4,228). Here, the higher-risk postcodes tilted towards lower-income areas, where 37% were low-income postcodes and only 11% were very high-income postcodes, the study found.

The lending pain being experienced by mortgage holders was further illustrated in NSW, where borrowers were required to fork out an extra $15,985 per year on average to meet loan repayments, up 62.3% from December 2020. In Victoria, an additional $13,327 (up 67.3%) was required, and in Queensland, borrowers needed an extra $11,567 (up 67%).

And while families in higher-income postcodes were generally expected to be more insulated against potential mortgage risk, due primarily to the likelihood of deeper savings, the size of their loans cannot be understated, PEXA said.

Repayments for those in Northbridge (2,063) and Canterbury (3,126) were tipped to increase by more than $60,000 annually – sizable sums irrespective of the borrower’s financial security.

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