Homeowners who have purchased during the pandemic are being hit on all sides as mortgage payments rise, property values plummet and day-to-day expenses soar.
“Indebted households are in the grip of a pincer movement, where inflation on essentials such as fuel and food, as well as the rapidly rising cost of debt are compressing balance sheets,” said CoreLogic research director Tim Lawless.
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A borrower with $500,000 in housing debt has already seen monthly repayments increase by about $366 a month since rates started rising in April.
The average Australian home loan in April was $615,304, according to data from the Australian Bureau of Statistics.
Mortgage arrears rates have already started to rise, according to Equifax executive managing director Moses Samaha.
Samaha says first-time buyers are more than twice as likely as other mortgage holders to be more than 90 days behind on their mortgage payments.
“It’s largely because many recent first-time home buyers entered the market during the pandemic, when rates were low but home prices were high and haven’t yet had the opportunity to making large down payments on their mortgage,” he said.
“As a result, this cohort quickly felt the impact of rate hikes on their relatively larger mortgages, compared to households that had more time to pay down debt and build equity.”
But Zippy Financial Group director and principal broker Louisa Sanghera says homeowners should think twice before rushing to switch to a fixed interest rate to escape rising variable rates.
Fixed rates are already in the 4-6% range, which is generally well above the variable rates currently offered, even after the three consecutive rate hikes.
“Borrowers should consider whether locking in these significantly higher rates is likely to benefit them in the long term, as no one knows when the current cycle of rising interest rates will end,” she said. .
Westpac’s closely watched chief economist Bill Evans expects another rate hike in August, possibly followed by a pause in September and October before resuming.
Evans expects rates to peak in February next year at 2.35%.
Other economists expect an even higher rating of 2.6% or more.
Meanwhile, property values in Australian capitals fell 0.8% in the June quarter, according to CoreLogic, while auction clearance rates at the start of the month were just 53.2%. , the lowest since July 2020.
“We continue to see average house prices fall 15-20% from top to bottom and this is happening earlier and faster than expected,” said AMP Chief Economist Shane Oliver.
Added to the pain is the rise in consumer prices.
Treasurer Jim Chalmers said last week that inflation had accelerated from the 5.1% read in the first three months of the year.
“Inflation will get worse before it gets better,” he said.