Sydney suburbs where rate rises will increase mortgage stress most

The Reserve Bank is forecast to lift interest rates up to 1 per cent in the next 12 months. These are the Sydney suburbs that will suffer the most mortgage stress.

More than 135,000 Sydney households will slide into mortgage stress if interest rates increase by 1 per cent, and the suburbs under threat are not just the traditional battlers.

Suburbs with young affluent households – including Dee Why, North Curl Curl and Five Dock – will be among the hardest hit by rate rises after soaring home values inflated mortgage sizes, according to new data from research firm Digital Finance Analytics.

The biggest increase in mortgage stress will be in postcode 2142, home to suburbs including Rosehill and Granville, with an extra 2745 households to become mortgage stressed.

Mature stable family suburbs such as Marsfield and Eastwood will experience an extra 1964 stressed households, while more than 1500 households in Randwick and Clovelly will also become stressed.

Mortgage-stressed households are those with a home loan that spend more each month than the income they receive. Sydney currently has more than 420,000 homes in mortgage stress.

Digital Finance Analytics principal Martin North said there had been a “pincer movement” where people were getting larger home loans as house prices surged, but rising incomes were not keeping pace.

Mr North said there were similar issues across nation’s capitals “but it’s on steroids in Sydney”.

“The average property price is so much higher – people are more exposed simply because of the fact they have bigger loans,” he said.

“People overcomitted when rates were low. The cost of living has risen and the pressure is really on now.”

Mr North said Bondi was an example where “a lot of people are younger having higher levels of income and are still in financial pain”.

He also mentioned the Lower North Shore: “people are financially stressed – they have big incomes but huge expenditure too.

“They have never been in a situation before where they are finding they have financial stress.”

“About 41 per cent of households across the country are in mortgage stress at the moment, which is 10 per cent higher than before Covid hit. The average mortgage is about 50 per cent bigger than it was before Covid.”

Mortgage broker Rebecca Jarrett-Dalton said average home loan sizes among her Sydney clients had jumped almost 50 per cent in the past few years to $638,000.

Postcodes with higher average purchase prices meant “people have stretched themselves a little more in these suburbs”, she said.

“The threat of an interest rate rise is definitely on borrowers minds,” Ms Jarrett-Dalton said.

“However, I think tenants are feeling the pinch as well – rental properties are scarce and expensive and most would still rather be stretching to pay off their own home than stuck renting,” she said.