Loanageddon: RBA data shows 275k fixed-rate loans to switch to variable rates in 2023

Interest rates on more than 250,000 home loans in NSW will more than double this year as fixed-rate mortgages reset to the variable rate. It will add $1500 a month to payments on an $800k loan.

• Full list: NSW suburbs where house prices have soared

First-homebuyers and lower income earners will be hardest hit when interest rates on more than a quarter of a million home loans in NSW more than double this year.

Data from the Reserve Bank shows that across the state, roughly 275,000 home loans that were fixed in the past two years will reset in 2023.

The move to a floating rate would see repayments on an $800,000 mortgage fixed at 2.5 per cent leap from $3600 to $5100 a month when the interest rate resets to 5.85 per cent.

The bank is estimating that 90 per cent of the loans that will reset this year will see their payments rise by 30 per cent or more.

Worryingly, roughly one-in-four of the borrowers affected will afterwards be spending more than 30 per cent of their income on paying their mortgages.

More than 250,000 borrowers with fixed-rate mortgages will be slugged with much higher payments this year. Picture: iStock

The bank says the group most likely to struggle are “borrowers in the bottom half of the income distribution, who are more likely to have less spare cash flow and so may reduce their consumption and/or encounter difficulty servicing their debt as they roll off” their fixed rate.

It says borrowers on fixed-rate mortgages tend to have “more risky loan characteristics” than variable rate borrowers.

Fixed-rate borrowers are more likely to struggle to pay their mortgages because they have bigger loans relative to their income, or have borrowed a higher percentage of the value of their properties than borrowers on variable rates.

And because their loans tend to be newer, these borrowers are less able to absorb rate increases because they haven’t paid off as much of their home loans as people who have always been on floating rates.

Commonwealth Bank’s Gareth Aird says some homeowners will face the double whammy of increased payments and reduced value in their property.

Gareth Aird, head of Australian Economics at the Commonwealth Bank, said borrowers whose repayments reset were facing a “massive step change” this year.

“The ones that are rolling off now fixed at very low rates — in some cases as low as 2 per cent — and these loans in many cases this year will go to between 5.5 per cent and 6 per cent,” he said.

“In many cases the interest component of their payments is going to more than double.”

The most vulnerable borrowers were those “who took out big mortgages when rates were very low which coincided with and underpinned the property boom — they are the ones who are going to feel it most.

“Some of them will also be experiencing a decline in the value of the home they have bought.”

Mr Aird warned the pain of interest rate rises would continue to increase for borrowers even after the RBA started cutting rates, as was expected later this year.

This was because although banks raised their mortgage rates in line with the RBA, their bank accounts didn’t “get hit” for another three months.

“So even after the RBA stops hiking rates, borrowers will see their outgoings increasing for another three months, on average,” he said.

Altogether around 880,000 fixed rate loans across Australia will reset this year, 400,000 in the first half and 480,000 in the second half of the year.

The RBA said the “profile for each state and territory mirrors the national profile”, which means that slightly less than a third of them are in NSW.

In 2023 around 275,000 out of a total of roughly 476,000 fixed home loans in NSW will reset this year.

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