One in three Australians paying off a mortgage are headed for financial stress when interest rates rise, according to a new survey.
Financial comparison site Canstar found that 14% of respondents were already facing financial hardship even without any change to interest rates, while another 19% would be pushed beyond their means if $100 is added to their mortgage repayments per week.
Canstar’s analysis showed that a 1.65-percentage-point climb in interest rates will result in an extra $108 to monthly repayments on a $500,000, 30-year loan, and that the same rate rise on a $1 million mortgage will add an additional burden of $217 per week, The Sydney Morning Herald reported.
Steve Mickenbecker, Canstar’s group executive financial services, said such rate rises, equivalent to Westpac’s forecasts, would push more than 30% of home loan borrowers into financial stress. He also urged borrowers to look for a better deal on their home loans.
“Increasing home loan repayments by more than $200 a week puts the price increases at the supermarket and petrol bowser into the shade, and demands that, if they can, borrowers should be looking for a lower rate loan now before higher interest rates take the opportunity away,” Mickenbecker told the Herald.
Mickenbecker said Australians should expect about six to eight mortgage rate rises in the next 18 months to two years, given what has happened historically. This, he said, could hit both those on smaller loan amounts and those who have had to borrow much more as property prices skyrocketed during the pandemic.
“There’ll have to be a number of people who will look at their finances and see it’s beyond retrieval,” Mickenbecker told the Herald. “They’ll have to sell up.”
Across Australia, house prices skyrocketed by 25.2% in 2021, while the median house price for all capitals soared to $1,066,133, Domain data showed.
The average mortgage also rose sharply, with Australian Bureau of Statistics data showing borrowers in NSW, Victoria, Queensland, and the ACT were taking out mortgages well above $500,000 on average in January.
“With property prices moving up by as much as they have over the past couple of years, million-dollar loans are anything but rare; they are almost the norm for more recent buyers,” Mickenbecker told SMH.
Shane Oliver, AMP Capital chief economist, said that while some people would be feeling the pinch when interest rates rose, the majority would have been tested to ensure they would be able to repay loans with higher rates.
“It’s almost certain people will find their budget getting stretched and some will go into financial stress,” Oliver told SMH. “In theory though, people who borrowed recently should have been tested to repay with a 2.5% or 3%. It’s unlikely interest rates will go up by that much.”
