Mortgage holders are ‘gritting their teeth’ and absorbing interest rate hikes

While interest rates are expected to continue to rise, more than five million Australians are likely to be affected by the rising cost of living and could experience mortgage stress, the data shows.

A new survey from Savvy found that 26% of respondents cited mortgage repayments as a major cost-of-living concern and may be worried about keeping pace with mortgage repayments in the coming months.

The survey found that 38% of 25-34 year olds and 35-44 year olds said rising mortgage repayments are a top concern when it comes to their ability to meet the cost of living.

Meanwhile, other age groups, particularly those over 55, expressed a lower level of concern about mortgage repayments.

According to the survey, 43.86% of mortgage holders spend between $251 and $500 on repayments each week, while 23% spend between $501 and $750.

Another 18 percent said they pay $751 and more per week to cover their mortgage.

Bill Tsouvalas, a savvy chief executive and personal finance expert, said the pandemic had drained the savings of many Australians who now worry about the future.

“If those 23% who said they had mortgage payments of $500 to $750 a week were single-income households, they would be in big trouble,” Mr. Tsouvalas said.

“Covid mortgage holidays are over and for some families there may not be much left in the tank to cover mortgage repayments.”

Mortgage stress as defined by the Australian Bureau of Statistics is a financial situation in which a homeowner or household uses more than 30% of their after-tax income to meet mortgage repayments.

Research firm Roy Morgan considers homeowners to be ‘at risk’ of mortgage stress if they spend between 25% and 45% of their income on their mortgage and at ‘extreme risk’ if they spend 45% of their income for their home loan repayments.

They estimated that 584,000 mortgage holders were “at risk” at the end of 2021.

When asked to choose their top three responses to mortgage repayment increases resulting from an interest rate hike, 53% of respondents said they would try to cut other expenses to prioritize their mortgage.

The survey showed that 28% of mortgage holders will absorb the increase, while 26% said they will just grit their teeth and experience mortgage stress.

Twenty percent said they were ready to switch lenders or refinance and 13 percent would lock in a fixed rate with their current lender.

Mr. Tsouvalas said there are still options for those struggling financially.

“If you can refinance at a lower rate, lock it in now,” Mr. Tsouvalas said.

He noted that 0.85% is still a record low and urged homeowners to refinance or fix their rate as a priority.

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