Borrowers with fixed-rate home loans due to expire in the coming months could find themselves under mortgage stress before Christmas, experts have warned.
Finder analyzed data from the Australian Bureau of Statistics and found that the $158 billion in fixed-rate mortgages maturing by the end of 2023 could increase repayments by an average of $10,872 a year.
A total of $29.8 billion of fixed-rate mortgages expire by the end of this year, which will mean an extra $641 in monthly payments by Christmas, according to the comparison site.
Finder data shows that 25 percent of borrowers are already struggling to pay their home loan each month.
“Fixed interest rates are a very scary prospect for many borrowers,” said Finder’s head of consumer research Graham Cooke.
“Hundreds of thousands of Australians will be hit hard and many will face mortgage stress if they are not properly prepared.
“That’s a very significant spike in repayment that many simply won’t be able to afford.”
Mr Cook said people should only spend what they need for the rest of the year and put any extra savings back into their mortgage.
“Very few Australians have the emergency funds needed to take on such a monthly rate hike – and rate hikes may not be over yet,” he said.
In fact, the Reserve Bank of Australia has indicated that further rate hikes are expected after the fifth hike in as many months.
But Ray White’s chief economist Nerida Conisby told NCA NewsWire that it is unlikely that large numbers of people will be in housing stress by the end of the year.
“However, that depends on how high rates rise between now and Christmas,” she said.
“Global inflation is starting to come down, so ideally the peak won’t be as high as originally thought – which will be good news for mortgage holders.”
Defining housing stress as spending more than 30 per cent of a household’s income on a mortgage, Ms Conisby outlined three reasons why it is unlikely to affect huge numbers of people.
“First, we have more jobs than people to fill them, so unemployment is not a problem,” she said.
“Secondly, we saved a lot of money through the pandemic – savings rates are going down, but as interest rates go up.
“Third, mortgage holders were priced out of the loan to be able to repay the mortgage at a rate 3 percent higher than what they originally signed up for.
“We’ve had super-low rates for a while now, and that’s been done so people don’t go through housing stress when rates start going up again.”
Ms Conisby said there was still no doubt that household budgets were being squeezed across the board.
“We’re going to start seeing less spending on a lot of things, like subscriptions, cars and clothes,” she said.
On the other hand, the stress of renting is worrisome.
“There are already twice as many renters in housing stress (more than a million households) compared to mortgage lenders,” Ms Conisby said.
“Advertised rents are now rising at the fastest rate ever recorded.”
Broker Craig Macdonald, owner of CBM Mortgages, said: “Many customers will see their fixed-term mortgages come to an end before Christmas and lenders will need to strengthen their variable rate offers to retain customers as customers are already starting to shop around. for better variable rate options.”
Real Estate Institute of Western Australia president Damian Collins told NCA NewsWire he remained optimistic about the market, but acknowledged some people would struggle.
“Obviously there are a lot of people on fixed rates. If that happens, they’re in for a bit of a shock because they might have locked in 2.8 percent or somewhere there, and they could go into a market where they’re paying 5 percent,” he said.
“So there’s no question that it’s going to slow down our market compared to what it would otherwise be, but … I certainly don’t see anything at this stage that suggests that we’re going to see that prices will go back at all.’
Adding to the pain for homeowners, Reserve Bank governor Philip Lowe said on Friday he would “not be surprised” if house prices fell by 10 per cent this cycle.
However, he emphasized that prices have increased by 15 percent in three years.
“We don’t want to predict house prices because that’s very, very difficult to do, but as interest rates continue to rise, and they will continue to rise, I expect the housing market to heat up even more and prices will come . further down.”
Mr. Collins noted that there is a severe housing shortage in Washington, with an inventory of just 8,000 and properties selling within 17 days.
“The situation with our rent is critical. In fact, this week we have the lowest number of properties announced for lease since November 2010,” he said.
“The market is basically in a very good condition. So far, the rise in interest rates has not had a noticeable impact on the market. Stock sales continue to be very strong each week.
“We have the cheapest housing market in the country and because of that we are on average much less mortgaged than many other parts of the country and our incomes are higher than everywhere else except the ACT and the economy is strong.
“Some people think that if you lose your job tomorrow, there’s a good chance you’ll get one pretty quickly, so we’ve entered this interest rate cycle in a fundamentally very strong position.”
Mr Collins also pointed out that banks were valuing loans at rates far higher than what people were paying.
“There’s no question people are going to have to tighten their belts, and they’re obviously going to have to cut some costs,” he said.
“But the house is usually the last thing they give up – they cut back on discretionary spending like restaurants, holidays (and) other things.
“You may see potentially more sales of investment properties, you may see potentially more sales of vacation homes … but the primary residence tends to be the last thing people let go of.”