Mortgage stress is mounting.
After four interest rate hikes this year, bringing the official cash rate (OCR) to 4.60% in September — the highest levels in 15 years — mortgage holders are under increased financial strain to repay their loans. Combined with persistent inflationary pressures and higher costs of living, borrowers are feeling the squeeze. Adding to concerns, market chatter emerged as early as last month that another rate hike could arrive in November, potentially placing further pressure on household budgets and reducing borrowing capacity.
Earlier this month, digital property giant REA Group warned that if another interest rate hike were to occur, mortgage repayments would reach levels not seen since 1989, when mortgage repayments ate up 37.5% of a borrowers' salary.
Against this backdrop, financially-stretched mortgage holders are increasingly turning to mortgage brokers to discuss their options and find ways to ease the pressure before circumstances become more difficult to manage.
"I am definitely having discussions about the potential of that — what people's options are and how they can start reducing stress in the system — if we get another rate increase," Adele Andrews, director and broker at Melbourne-based Australian Property Home Loans, told Australian Broker. "Some owner-occupiers who bought at the very top of their borrowing capacity when rates were very low years ago — three years ago at very, very low rates, probably unprecedented low rates — and now they are suddenly facing a number of increases since then. Whether that's going to push them into a budget that they can't afford, it's hard to say. I don't know whether that's going to be enough to tip some people into mortgage distress. But borrowers need to make moves before they get into dire straits. The alternative — losing your home — isn't an option. So it's just ensuring people are making moves before things get really serious.
"I'm getting a lot more inquiries from clients wanting to go interest-only [repayments] on their owner-occupied mortgages, or getting better rates," the broker continued. "They're not inquiring about selling yet. But they're talking to me about the fact that they need to really look at their mortgage, whether it be extending it out to 30 years again, or going interest-only, because repayments are now becoming an issue. Obviously, selling would be the last resort. But it's a conversation that's starting to enter the market."
Shannon Ingram, founder and principal mortgage broker at Ingram Financial in Bangor, New South Wales, said since the May budget reveal, he's seen "more and more people just not qualifying for refinance. They're just not able to access the better pricing from some of the other lenders that's available at the moment.
"Things have definitely shifted," the broker continued. "Previously, I was having conversations, such as, 'When do we go and buy the next investment property?' Now it's all, 'How can I improve my current situation?'"
With the prospect of additional rate rises looming, borrowers are being forced to reassess their finances as higher mortgage repayments compete with the rising cost of everyday expenses.
Mortgage brokers say the key is to understand where the pressure points lie before financial difficulties escalate.
"There are definitely options," Andrews said. "I'm saying to everyone that it's so important now that you understand your options and start preparing because the market is indicating another rate increase. And if people are starting to feel the pinch now, then it's only going to get harder. It's 100% essential that people start understanding their numbers, understanding what the options are, whether they are even able to go interest-only, whether it would end up being a better result than going principal and interest over a longer period of time. Even looking at lenders that do longer-term loans. There are all sorts of ways that we can explore, potentially, keeping the family home that doesn't, hopefully, result in selling it.
"People need to be very aware of the market that we're in at the moment," she continued. "It is very volatile, and we may see another rate increase. People need to be aware of how that's going to impact their repayments, their lifestyle, their budget, their ability to keep their homes. I would hope it doesn't get to that point, but I don't know how strained some households are. And we haven't seen rate increases up to this point for a very, very long time. So people are going to have to get very, very tight on their budgets and manage their money and ensure that they can afford their repayments."
Ingram recommended going the refinancing route.
"Or even just approach your current lender and ask for a discount," he said. "The bigger banks, at the moment, are competing quite hard to win business. Lending across the board is down. There's a big focus on retaining business and attracting new business. So asking your bank for a discount is a very good first step.
"And if they're not willing to play ball — and a lot of them aren't — then go off and engage with a broker like myself," he continued. "They'll run through your situation and come up with a solution."
Ingram also pointed to household spending as another area borrowers should examine, particularly as rising repayments leave less room in the budget for discretionary expenses.
"Those little spending leaks are a good thing to refocus on," he said. "Everyone likes to pick on the old avo toast and coffee. But if you add up your cup of coffee each day, across the course of the year, it starts to look like a pretty reasonable number."
