‘Sleepwalking into disaster’: Properties to flood market once interest rates rise
A flood of properties could be forced onto the market when interest rates finally rise, with a new survey identifying the tipping point at which half of Aussie homeowners would be unable to afford to keep their homes.
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A flood of properties could be forced to market when interest rates rise, with a new survey finding the tipping point half of Aussie homeowners would be unable to afford.
The survey commissioned by Australia’s peak finance and mortgage broker body, the Finance Brokers Association of Australia and conducted by research firm McCrindle, predicts looming disaster when interest rates rise by just 1 percentage point.
The Australian mortgage and rental affordability survey found the majority of Australian borrowers and renters could not meet a mortgage or rent increase equivalent to a rate rise of only one per cent.
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FBAA managing director Peter White – who’s been 40 years in the industry – said after 11 years without a rate rise Australians had possibly grown complacent.
“Many Australians are clearly on the brink and are sleepwalking into disaster, living in the false hope that rates will stay this low.”
He warned that “the housing market has soared and there is a reasonable chance will undergo a correction, meaning that those with low deposits who have stretched themselves to make large repayments could see themselves with negative equity, owing more than the value of the property. Add a mortgage increase they can’t pay, and there could be a lot of people in real trouble.”
Mr White said the survey was a warning of what’s to come for borrowers and the nation.
“This survey is a wake up call and shows that even a small rise in rates – which is looking more likely next year with rising inflation – could be catastrophic for our nation.”
Asked how likely they were to be able to meet a monthly increase in their rent or mortgage of $300 – which is equivalent to a 1 per cent rate rise, more than half said “not at all”.
“Shockingly 57 per cent of people paying a mortgage or rent answered ‘not at all’, and we are talking about an increase equivalent to only one per cent based on the average home loan.”
“One per cent is not a large increase. It will happen and with the RBA recently deciding not to intervene to stop increasing yields on three-year government bonds, it will likely happen soon. My message to Australians is that we must be better prepared.”
Just under half of those (46 per cent) with a combined gross weekly income between $2000 and $3000 were at risk of not coping at all, “showing that the problem is not limited to very low income earners”, Mr White said.
Those who said they could not meet at all a $300 a month rise included 80 per cent of respondents in single parent families, 76 per cent of those with a combined gross weekly income of $700 to $1200, 71 per cent living in remote areas, and 70 per cent of Baby Boomers.
“Where do these people go if they have to walk away from their home? Public housing, the street? The options for lower income earners are slim and this will reverberate throughout our society, most likely on the back of the Covid economic struggles.”
Mr White said interest rates had only one way to go now and that was up.
“The only way is up. The housing market is overheating and the banks, regulators and government are already talking about lifting the floor rate (a higher rate used to calculate repayments) to slow borrowing. This along with rises in fixed rates points to rising interest rates.”
He said Australia was not exempt from international trends like New Zealand, UK and USA that have raised rates with rising inflation.
Mr White said it was time for “an honest, balanced and informed approach” by borrowers, ensuring they did not overcommit themselves or go deep into payday loans, personal loans or credit cards.
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