Australian dream turns sour as interest rate hike sees mortgage repayments skyrocket

What should be an exciting time for first-home buyers has turned sour, as rate hikes hit mortgage repayments. One Cairns couple has wound up paying an extra $210 per week in just two months.

What should be an exciting time for first-home buyers has turned sour, as rate hikes and cost-of-living pressures leave some Cairns residents scrimping to cover larger-than-expected mortgage increases.

Toby Phillips and his wife moved into their new Smithfield house two months ago and have already seen a $210 increase in their weekly repayments.

The couple has been forced to leave half the house unfurnished and rent out their downstairs area to help pay the bills.

Mr Phillips, 34, felt “anxious” watching the RBA lift its official cash rate to 2.6 per cent last week, the highest it has been in seven years.

It was the sixth time interest rates have been raised in as many months, as the central bank attempts to curb rising inflation.

Senior financial adviser for Cairns-based Kelly Wealth Services Dave Haydon said the hit to mortgage holders had been bigger and more brutal than many imagined.

“The speed of the rate rises has caught a lot of people off guard,” Mr Haydon said.

“Basically, people were being led to believe that there wouldn’t be interest rate rises for all of 2022. And then, of course, that narrative’s completely changed.

“By having a number of half a per cent rises, and then doing them back to back, that is the first time the everyday Australian – and particularly first-time buyers – have been in an environment like that for more than a decade,” Mr Haydon said.

With the Reserve Bank continuing to raise interest rates, new homeowners such as Toby Phillips are having to watch their household budgets. He and his wife bought their Smithfield home two months ago, with minimum repayments increasing by $210 a week in that time. Picture: Brendan Radke

Mr Phillips was one of those blindsided by the rate rise.

“Talking to my mortgage broker and financial advisers all of them gave me the impression that yes, it’s gonna go up, but you’re not really going to notice it that much,” Mr Phillips said.

“When we went in to buy the house the minimum repayments were less than our previous rent, so it felt really doable.

“My understanding was it might go up by $50 a week, $40 a week. A $200 increase is definitely stretching our capacity to be able to manage,” he said.

Mr Phillips described receiving four letters from the bank in the short time they had been in the house.

“One day there were actually two in the letterbox. One said it’s going to go from $500 to about $560, and the next one that it’s going to go from $560 to $620 … not a good day,” he said.

Despite wishing to live alone, the Phillips decided to have a tenant move in to help pay the bills and said they might be forced to find another if things got worse.

“It’s really not what we want to do. We kind of made a decision about a year ago that we were going to stop living in sharehouses because of how difficult that could be. But, yeah, kind of being pushed back into the situation.”

Mr Haydon said a silver lining of the rate rise for first-home buyers would be seeing their savings start to generate interest.

Dave Haydon, senior financial advisor at Kelly Wealth Services. Picture: Supplied

“For the first time they’re starting to get some sort of return on the cash they’re saving up,” he said.

In the meantime, the Phillips have cut back on costs where they can – changing gym memberships, going out less often, and cooking more meals at home.

“We had to put the brakes on furnishing the house, so half of it’s still totally unfurnished because we can’t afford the outlay,” Mr Phillips said.

“There’s quite a lot of financial stress which I haven’t really ever experienced in my life.”

Originally published as Australian dream turns sour as interest rate hike sees mortgage repayments skyrocket