Victorians brace for interest rate rises: Search every suburb

Victorian homeowners will have to find thousands of dollars to cover extra interest on their mortgages this year as the market factors in a 2.5 per cent rise. SEARCH YOUR SUBURB.

Mark Dang and his partner Stephanie Som and their daughter Miesha 5, have just bought a property in Highett, and are also selling their current one in the same suburb. Picture: David Caird

Victorian homeowners will have to find thousands of dollars to cover extra interest on their mortgages this year as the market factors in a 2.5 per cent rise by Christmas.

Those on low incomes will be hardest hit, but exclusive PropTrack data weighing up average suburban incomes against median house prices shows affluent postcodes, including sea-change spots so popular during the pandemic, are among those most sensitive to a rate rise.

The Reserve Bank on Tuesday raised the official cash rate 0.25 per cent to 0.35 per cent in the first increase since November 2010 — but the market is factoring in a steep 2.5 per cent rise by the end of the year and an increase of at least 1 per cent is considered very likely.

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That 0.25 per cent rise will instantly whack $80 a month onto the mortgage repayments on an $800,000 median priced home in Melbourne over the past year, assuming an 80 per cent loan-to-value ratio and the average new mortgage rate of the past 12 months, 2.43 per cent.

PropTrack economist Angus Moore said the “accessibility” aspect of housing affordability had been the main constraint for first-home buyers in recent years, while “serviceability” — paying a mortgage — was the main constraint “many decades ago” when interest rates were high.

Serviceability has not been an issue as housing affordability has come to the fore over the past decade as buyers struggled to save a deposit amid skyrocketing prices. It will now be a factor.

“Serviceability is going to get tougher over the next couple of years as interest rates rise compared to where they are today,” Mr Moore said.

“Certainly rising interest rates are going to strain some people. No one wants to have to pay more on their mortgage. That said, banks when they extend a loan assess your ability to pay it at an interest rate 3 per cent above what they’re actually offering you.”

That 3 per cent rise could be in the next 18 months, according to Lendi Group chief executive Dave Hyman. He said a “2-3 per cent” rise was likely in the next “12 to 18 months”.

Art Deco appeal helped 83 Brunswick Rd, Brunswick East, to a $2.03m sale last month.

The four-bedroom house at 25 Greenham Ave, Craigieburn, fetched $730,000 on May 5.

Mr Moore said while it “was not going to be pleasant”, the rises should not force people into arrears or default because of this interest rate rise buffer the banks considered.

If mortgage holders keep their current terms, their minimum repayments will go up, but those paying more than their minimum “might not even notice” and those who have paid down several years of a 30-year loan could consider refinancing the length to avoid paying now.

Mr Moore said a 1 per cent rise by the end of the year was “very plausible” but markets were pricing in a 2.5 per cent rise by the end of the year, which he believed was steep.

“That feels very brisk to me,” he said.

“I don’t think we’ll see the RBA move that quickly but there is certainly the possibility that they have to move reasonably quickly to get inflation under control.”

Fingal on the Mornington Peninsula was Victoria’s most sensitive market overall and the state’s only entrant in the national top 10, according to PropTrack’s analysis, which ranked these by share of income needed to service a mortgage on a median-priced home.

Mont Albert North and Box Hill South were in the national top 10 for units.

PropTrack’s April Home Price Index showed the Melbourne market had stalled and NAB is forecasting a property price decline of 11.4 per cent next year.

The five-bedroom house at 12 Lahinch Drive, Fingal, is on the market for $2.2m-$2.4m.

A two-bedroom unit at 4/60-64 Foch St, Box Hill South, is for sale $700,000-$750,000.

Advantage Property Consulting director Frank Valentic said different segments of the market would feel the pinch of rate rises differently.

“First-home buyers, investors and lower-income, entry-level buyers are always more sensitive to interest rates,” Mr Valentic said.

“That part of the market is talking about it more compared to the middle-upper end of the market … these people were expecting it to go up and the increased costs are still at a record low so it wasn’t a massive surprise.”

Economist Saul Eslake said rate rises did not necessarily lead to prices falling, but noted this cycle could be different due to the booming market while they fell and stayed at record lows.

He expected Melbourne and Victoria’s economies and property markets “may be in for difficult times” if migration did not return to pre-pandemic levels over the next few years.

Mr Hyman said 40 per cent of all outstanding loans were on fixed rates and “a sizeable portion” were due to expire this year.

“With fixed rate mortgages rolling over to variable rates many Aussies will have to start considering their refinance options sooner rather than later,” he said.

There were opportunities for mortgage holders to get ahead of their finances in a rising rate environment, including refinancing and taking advantage of lower rates while they lasted.

Speaking on the data, Mr Moore noted recent purchasers in a suburb were likely to earn more than the suburb average income.

Mark Dang and his partner Stephanie Som, and their daughter Miesha, 5, are selling up to free up money. Picture: David Caird

CAUTIOUS MOVES

Mark Dang and his wife Stephanie are selling their Highett investment apartment for some extra cash as interest rates rise.

The couple purchased a family home in the same suburb last year for $960,000, where they are now moving with their daughter — five-year-old Miesha.

“It was bound to go up — it wouldn’t stay low forever,” Mr Dang said of the rate rise.

“I factored this in already … but regardless, you have to keep things like this in mind and be a bit more cautious with howyou spend and not take on more than you can handle.

“Sometimes it’s harder, which is why we want to sell the apartment.”

Ray White director Kevin Chokshi is selling the couple’s apartment at 503/1146 Nepean Hwy with a price guide of $340,000-$370,000,and noted that although people may panic about what these rises meant for the next few years, it was “not going to matter” in the long term.

“Most people in Australia get a 30-year mortgage … interest rates will change all the time in that period,” Mr Chokshi said.

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Originally published as Victorians brace for interest rate rises: Search every suburb