Australians face uncertain mortgage conditions ahead,
More than 1.6 million homeowners are currently on the brink. This situation follows the Reserve Bank’s refusal to rule out further rate hikes.
As a result, any relief for these homeowners may be short-lived. New figures from Roy Morgan indicate that 1.659 million mortgage holders are at risk.
This represents approximately 29.5 percent of all mortgage holders. Consequently, many are facing uncertain financial futures due to rising interest rates.
Recent reports indicate that the number of mortgage holders at risk may decline in the upcoming months. However, this decline depends on the Reserve Bank of Australia’s decision regarding interest rates.
Currently, the official interest rate is set at 4.35 percent. This rate has not been seen since December 2011, reflecting significant mortgage stress levels.
In fact, the highest recorded level of mortgage stress was 35.6 percent in mid-2008. The Roy Morgan report highlights that the number of mortgage holders deemed ‘extremely at risk’ has surged to 1.013 million.
This figure represents 18.6 percent, which is notably higher than the 10-year average of 14.5 percent. Consequently, many homeowners are feeling the pressure of rising mortgage rates.
Projections suggest a worsening scenario if the RBA increases interest rates by 0.25 percent in November. If this happens, mortgage stress levels are expected to rise significantly.
Roy Morgan chief executive Michele Levine noted that recent tax cuts have offered some relief to Australians facing mortgage stress.
“The latest Roy Morgan data shows that 1.659 million mortgage holders were at risk in August 2024,” Ms. Levine stated.
This marks only the fifth month this year where over 1.6 million mortgage holders were considered at risk.
Despite these challenges, the employment market has demonstrated resilience, with 375,000 new jobs created over the past year.
This job growth has helped support household incomes and alleviate some mortgage stress levels.
However, inflation remains above the RBA’s preferred range of 2-3 percent. Additionally, essential costs like petrol are at record-high prices, contributing to financial strain.
Mel Finance director Lumbini Wekunagoda stated that first-home buyers are struggling, especially those living on the outskirts of capital cities.
This challenge particularly affects individuals who are not in professional roles, making home ownership more difficult for them.
“What we advise clients is to make additional repayments on top of the minimum,” Mr. Wekunagoda explained.
“Even if interest rates rise, they can alleviate their financial pressure by seeking better deals with their lenders.
Mortgage holders with larger amounts should negotiate for a reduction in their rates.”
He noted that investors are often asset-rich but cash flow-poor across the country.
Mr. Wekunagoda mentioned that professionals in their late 20s to mid-30s are managing well, but life changes can increase financial pressure.
“Those on a single income, especially first-home buyers, face significant challenges during typical life stages,” he said.
After one to two years, many have children and often drop to one income, making them vulnerable to rate hikes.
“Last year, around this time, we typically saw higher inquiry levels, even aside from the footy Grand Final.”
“What we’re observing now is that consumers desire to purchase a home but are waiting for interest rates to decrease.”
Mr. Wekunagoda predicts that interest rates will likely decrease between February and May, which could trigger a nationwide property boom.
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Mortgage Choice Berwick’s David Thurmond mentioned that he hasn’t observed a significant number of clients experiencing mortgage stress recently.
However, he has encountered clients who struggle to prove their affordability due to their casual work situations.
“As interest rates start rising with each decision from the RBA, we advise clients to consult us before considering debt consolidation,” Mr. Thurmond explained.
This recommendation aims to provide instant cash flow relief during difficult financial times.
“Mortgage stress mainly revolves around effective cash flow management,” he added.
“We address this on a needs basis and discuss the pros and cons of debt consolidation. This evaluation helps clients avoid selling their homes.”
“It’s a positive sign that the Australian finance system is generally functioning well,” he noted.
“Even though some systems are facing challenges, we have not encountered any major issues so far.”
Mr. Thurmond also stated that the government’s interventions during the pandemic are now being felt in the market.
Current forecasts indicate that interest rates are likely to fall by 1.5 percent over the next 12 to 18 months.
“Buyers are evaluated at 3 percent above the current interest rate, indicating that the system is functioning effectively.”
“Having observed the situation in the US, buyers are optimistic that the RBA will lower interest rates sooner rather than later.”
However, the RBA board stated that inflation remains too high to justify any cuts in interest rates at this time.
“Inflation has significantly decreased since its peak in 2022, as higher interest rates have worked to balance aggregate demand and supply,” the report noted.
“Nevertheless, inflation is still well above the midpoint of the target range of 2–3 percent.”
