Fears many people will experience mortgage stress by Christmas as interest rates rise

Borrowers on fixed interest home loans that are due to expire in coming months could be put under mortgage stress by Christmas, experts warn.

Finder analysed Australian Bureau of Statistics data and found $158bn of fixed rate mortgages set to expire by the end of 2023 could increase repayments by as much as $10,872 per year on average.

An estimated $29.8bn worth of fixed rate mortgages will expire by the end of this year, which will mean an extra $641 in monthly repayments by Christmas, according to the comparison website.

Finder data shows 25 per cent of borrowers are already struggling to pay their home loan each month.

“The fixed interest cliff is a very scary prospect for a lot of borrowers,” Finder head of consumer research Graham Cooke said.

Camera IconAn estimated $29.8bn worth of fixed rate mortgages will expire by the end of this year. NCA NewsWire/Nicki Connolly Credit: News Corp Australia

“Hundreds of thousands of Aussies will be hard hit, with many facing mortgage stress if they aren’t adequately prepared.

“This is a very significant spike in repayments that many will simply not be able to afford.”

Mr Cooke said people should only spend what they needed to during the rest of the year and repay any additional savings on their mortgage.

“Very few Aussies have the emergency funds they need to handle a monthly rise of this proportion – and rate increases may not be over yet,” he said.

In fact, the Reserve Bank of Australia has indicated more rate rises are on the way following the fifth increase in as many months.

But Ray White chief economist Nerida Conisbee told NCA NewsWire that it was unlikely that there would be a large number of people under housing stress by the end of the year.

“However, it does depend 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 – this will be good news for mortgage holders.”

Camera IconReserve Bank of Australia governor Philip Lowe has indicated more interest rate rises are on the way. NewsWire/Monique Harmer Credit: News Corp Australia

Defining being under housing stress as spending more than 30 per cent of household income on mortgage repayments, Ms Conisbee outlined three reasons why it was unlikely to hit a huge number of people.

“The first is that we have more jobs than people to fill them, so unemployment isn’t a problem,” she said.

“The second is that we have saved a lot of money through the pandemic – savings rates are coming down, however as interest rates rise.

“The third is that mortgage holders were assessed when borrowing on being able to pay off a mortgage with a rate 3 per cent higher than what they initially signed.

“We have been at ultra low rates for some time now and this was done so that people didn’t go into housing stress once rates started to rise again.”

Ms Conisbee said there was still no doubt that household budgets overall were being squeezed.

“We will start to see less being spent on many things, for example, subscriptions, cars and clothing,” she said.

Rental stress, on the other hand, is a concern.

“Already, twice as many renters are under housing stress (more than one million households) compared to mortgage holders,” Ms Conisbee said.

“Advertised rents are now rising at their fastest rate ever recorded.”

Camera IconHousehold budgets overall are being squeezed. NCA NewsWire/David Swift Credit: News Corp Australia

Broker Craig McDonald, owner of CBM Mortgages, said: “A lot of clients will see their fixed term mortgages come to an end by Christmas and lenders will need to sharpen their variable rate offerings to retain clients, as clients are already starting to shop around for better variable rate options”.

Real Estate Institute of Western Australia president Damian Collins told NCA NewsWire he was still optimistic about the market but admitted some people would struggle.

“There is obviously a lot of people on fixed rates. When that rolls off, they’re going to be in for a bit of a shock because they might have fixed at 2.8 per cent, or somewhere around there, and they might come into a market where they’re paying 5 per cent,” he said.

“So there’s no doubt it’s going to slow our market down from what otherwise it would have been, but … I certainly don’t see anything at this stage that suggests that we’re going to see prices come backwards at all.”

To add to the pain for homeowners, on Friday Reserve Bank governor Philip Lowe said he “wouldn’t be surprised” if property prices fell 10 per cent in this cycle.

However, he did highlight prices are up 15 per cent over three years.

“We don’t want to forecast housing prices, because it’s very, very difficult to do, but as interest rates rise further, and they will rise further, I’d expect more heat to come out of the housing market and prices to come down further.”

Mr Collins noted there was a severe shortage of housing in WA, with stock of just 8000 and properties selling within 17 days.

“Our rental situation is critical. We have in fact the lowest number of properties advertised for rent this week since November 2010,” he said.

“The market fundamentally is in very good shape. Interest rate rises so far don’t seem to have had any noticeable effect on the market. The stock selling each week is still very strong.

“We have the cheapest housing market in the country and because of that we’re a lot less mortgaged up on average than many other parts of the country as well, and our incomes are higher than everywhere except the ACT and the economy is strong.

Camera IconThere is a severe shortage of housing in WA. NCA NewsWire/Christian Gilles Credit: News Corp Australia

“Some people feel if you lost your job tomorrow, there’s a fair chance you’ll get one pretty quickly, so we’ve come into this interest rate cycle in fundamentally a very strong position.”

Mr Collins also noted banks had been assessing loans at rates far higher than what people were paying.

“No doubt people will have to start to tighten their belts and they will have to obviously cut back on some spending,” he said.

“But the house is the last thing they generally give up – they cut back on discretionary spending like restaurants, holidays (and) other things.

“You might see potentially more investment property get sold, you might see potentially more holiday homes get sold … but the primary residence is generally the last thing that people let go.”

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