Gold Coast real estate: Worst suburbs to have a mortgage in as interest rates rise
Some of the Gold Coast’s most exclusive suburbs have made the list of the worst places to live with a mortgage, according to new data which reveals the residents who will feel the most pain from the latest interest rates rise.
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Nearly 1300 more Gold Coast households are facing financial hardship as the Reserve Bank delivered a larger-than-expected interest rate rise.
The board of the Reserve Bank on Tuesday lifted the cash rate by half a per cent, taking interest rates to 0.85.
Monthly repayments on a $500,000 mortgage will increase by $133 while those who borrowed $1m will pay an extra $265.
Reserve Bank Governor Philip Lowe revealed the larger-than-expected increase, the second in consecutive months, was in response to spiking inflation and other global factors.
“Inflation in Australia has increased significantly (and) while inflation is lower than in most other advanced economies, it is higher than earlier expected,” he said in a statement.
“Global factors, including Covid-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation but domestic factors are playing a role too, with capacity constraints in some sectors and the tight labour market contributing to the upward pressure on prices.
“One source of uncertainty about the economic outlook is how household spending evolves, given the increasing pressure on Australian households’ budgets from higher inflation.”
Dr Lowe said there was hope on the horizon, with inflation set to peak later this year, returning to the 2-3 per cent range in 2023 once supply chain issues and commodity prices stabilise.
But it’s cold comfort for the 23,381 Gold Coast households experiencing mortgage stress.
It is up nearly 1300 households since the Reserve Bank increased interest rates in early May.
Mortgage stress means homeowners are spending at least 30 per cent of their income on loans.
The postcode with the highest proportion of struggling homeowners remains 4216, home to the expensive waterfront mega mansions of Sovereign Islands, Paradise Point and Runaway Bay.
Melbourne-based analyst Martin North revealed Gold Coast borrowing households were under increasing pressure.
Mr North, from Digital Finance Analytics (DFA), said Gold Coast homeowners needed to prepare for more pain.
“There are multiple causes for this growing stress including the interest rates rise and increased cost of living,” he said.
“This is only the start of something, not the end, so people need to prepare now for further increases.”
MAY: IMPACT OF FIRST RATES RISE
A leading finance analyst expects the number of cash-strapped Gold Coasters in mortgage stress to spike after the Reserve Bank of Australia (RBA) asked them to find on average an extra $65 a month.
The RBA on Tuesday raised interest rates for the first time in nearly 12 years, raising the cash rate by 25 basis points to 0.35 per cent, meaning monthly repayments on an average $500,000, 25-year loan will jump by at least $65, or $130 for a $1m mortgage.
Bank governor Dr Philip Lowe warned the hip-pocket pain was just the beginning, with several interest rates rises expected to combat an inflation high of 6 per cent before Christmas.
The big four banks did not react immediately on Tuesday afternoon.
At Westpac a two-year fixed interest rate $500,000 30-year loan was 3.79 per cent, while the basic variable was 2.19 per cent
Melbourne-based analyst Martin North revealed the number of Gold Coast households in mortgage stress had increased by 20 per cent to nearly 23,000 in the three months leading up to Tuesday’s decision.
Mortgage stress means homeowners are spending at least 30 per cent of their income on loans.
The postcode with the highest proportion of struggling homeowners was 4216, home to the expensive waterfront mega mansions of Sovereign Islands, Paradise Point and Runaway Bay.
Mr North, from Digital Finance Analytics (DFA), said many Gold Coast homeowners faced “the worst of all possible worlds”.
“Rates are going up which is bad news for the many households that are already experiencing mortgage stress, especially those who have borrowed even larger sums to get into the market,” he said.
“However, we have seen no increase in real wages while the cost of living has gone up and pressure on households is building.
“There will be people who bought into the market in the past year who will experience negative equity, which is when the value of the property becomes less than the mortgage.
“Whatever happens, this will be the worst of all possible worlds.”
Mr North said it would lead to reduced economic activity with people spending less and needing to borrow more to stay afloat.
Leading real estate agent Dane Atherton of Harcourts Coastal hit back at doomsday fears, saying there was “no evidence” the market would “go off a cliff”.
“I believe the market will have effectively factored this rise into their plans,” he said.
“The threat and looming result has already had an impact on the market and anyone buying now will factor it in.
“Nobody is under any illusions about what is happening and everyone is expecting this to be the first of many.”
Mr Atherton said he expected the Gold Coast’s property market to continue at a steady pace.
“The craziness and overheated period has gone and it has found some consentience which will continue,” he said.
The Reserve Bank’s decision to increase interest rates came more than a month ahead of schedule and was in response to inflation last week jumping to a 20-year high of 5.1 per cent.
Dr Lowe said the time was right for the first interest rates rise since 2010, despite inflation set to increase further to 6 per cent.
“Inflation has picked up significantly and by more than expected, although it remains lower than in most other advanced economies. A further rise in inflation is expected in the near term.
“Given both the progress towards full employment and the evidence on prices and wages, some withdrawal of the extraordinary monetary support provided through the pandemic is appropriate.
“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead.”
Dr Lowe denied the bank’s decision was in any way linked to the May 21 federal election.
“We make decisions in the national interest … and we don’t take account of politics in making those decisions,” he said.
Prime Minister Scott Morrison, who is under fire for his handling of the economy less than three weeks out from the poll, blamed the pandemic for the interest rate rise.
“For those that are paying more, that will be hard, and we understand that,” he said.
“It’s why we reduced taxes, it’s why we cut the fuel tax in half, it’s why we provided support to pensioners, it’s why we’ve ensured on the first of July of this year that Australians will keep more of what they earn.
“We’ve taken practical action to ensure that the impacts of these types of decisions we have addressed before they’ve even occurred.”
Economists have predicted rates will continue to increase monthly until Christmas, rising to at least 2 per cent.
IT’S NOT ALL DOOM AND GLOOM
A leading buyers’ agent says Gold Coast househunters should not be scared off by rising interest rates.
The Reserve Bank on Tuesday lifted its cash rate by 0.25 per cent – the first such rise since 2010.
However Srama Group founder and former Titans player Matt Srama said people had little to fear so long as they budgeted properly.
“Sometimes it’s not as scary as people are thinking,” Mr Srama said.
“Sentiment and confidence are driven by what people read or hear. What I’m finding is when people hear all these things, that interest rates are rising, they actually haven’t done the numbers to work out, what does this look like if I were to buy a property, what does this look like in terms of worst case scenario, what would this do for our spending per week.
“ … Me and a broker sat down and we did the numbers on a 30-year loan period at roughly a $1.1 million purchase price,” Mr Srama said.
“A 50 basis point rise on a 30-year loan on a standard rate at the moment, for principal and interest, it worked out at (just) under $200 a month increase.
“That’s the cost of a meal out for a lot of people.
“ … That’s the biggest tip I can give. Do the numbers on what an actual 25 to 50 basis point rise does to your household income.”
The big four banks all announced on Wednesday they would pass the interest rates rise, which will come into effect from May 20.
It is expected to add an extra $65 onto monthly repayments, with the RBA on Tuesday saying interest rates will continue to climb through until Christmas.
Ray White Surfers Paradise boss Andrew Bell said that, while he didn’t welcome the rates rise, it was important for the future stability of the Gold Coast property market.
“It will have a cooling effect on the real estate market and you will see the impact on overspending on everything from cars, boats and caravans wash over everything and slow it down,” he said.
“This is the market making sure it doesn’t implode and it is a very healthy thing for the long-term stability of the real estate market.
“There is no comparison at all between this and the global financial crisis and I have been through a number of those sort of events, including Black Monday in 1987.”
Mr Srama said that the fallout from the rate rise could actually help buyers who had their finance in place, with less competition in the market.
“One of my favourite sayings is, ‘would you rather buy in competition, or in isolation?’,” Mr Srama said.
“What I find is, when interest rates go up, when sentiment, confidence comes into it – and we’ve got an election coming up as well – what I find is a lot of buyers actually pull off and turn on the brakes, so to speak.
“ … What I’m noticing is, due to the lack of buyer competition the ability to purchase a deal, so to speak, has never been better.”
Mr Srama said the shift in sentiment marked a significant change on the previous 18 months, in which many buyers were motivated by a ‘fear of missing out’ (FOMO).
He said many of those buyers had overextended themselves and faced a challenging time ahead.
“The people who over-leveraged in an upswing market, it’s going to be tough for them,” he said.
“(Some are) up to their eyeballs in debt. Because of the FOMO, they were like, ‘nah, let’s just get in’, and they didn’t do their buffers on any interest rate increases.
“You’ve got to remember, the last 12 months has been historic low interest rates. So you would have hoped people put the buffers in.
“And the ones who didn’t, and I think there will be a fair few because of the FOMO, they’re the ones who I feel may struggle in the next year or so.”
BIGGEST WINNERS
Investors, first-home buyers and self-funded retirees are the big winners from Tuesday’s interest rates hike, finance experts say.
The Reserve Bank of Australia’s decision to raise interest rates for the first time in nearly 12 years is expected to be the first of several hikes this year.
While average mortgage repayments will increase by around $65 a month, economists and mortgage experts predict it will help slow rising property prices and make it easier for first-time buyers to get into the market.
Gold Coast Mortgage Broker founder Adam Hall said the interest rates hike was a “necessary evil” that would have some positives.
“There are a whole lot of home buyers who came into the market during the past decade who have never experienced a rates rise but it translates through to the price of a case of beer,” he said.
“On real estate prices, I think they will hold a little bit longer, though I have clients who have been waiting for these circumstances to come along to finally buy a home.
“Investors will be the big winners, at least initially, but there will be opportunities which arise because first-home buyers will now be in a great place to buy a property.”
Self-funded retirees will also breathe a sigh of relief, as interest rates rises are expected to transform into better returns on investments.
A leading economist says Gold Coast house prices could fall by around 10 per cent if the RBA continued to hike interest rates.
Dr Peter Tulip, chief economist at the Centre for independent Studies, said the fall could be expected if rates rose by two per cent, as predicted by many economists.
“Our research shows that every percentage point increase leads to an average eight per cent drop in house prices,” Dr Tulip said.
“So, if interest rates rise by two per cent then house prices will be 16 per cent lower relative to what they would have done otherwise.
“If they would have normally risen about five per cent, that’s about a 10 per cent drop.”
Dr Tulip, who formerly worked at the RBA and US Federal Reserve, said a drop in house prices of that nature would not be a major cause for concern.
“I would interpret that as a partial correction to the boom that we’ve had.
“ … The Reserve Bank is reacting to an economy that is very strong. On balance, a lot of people are doing well.”
Dr Tulip also said borrowers on the Gold Coast “should not be worried” if they had taken proper precautions.
“I hope that they considered fixed-rate options. Borrowers have certainly been warned that this might happen.”
WHAT IT MEANS
A Gold Coast woman says she is concerned friends who bought homes in the last 12 months could struggle to cope with interest rate increases.
Mother-of-three Vanessa, who didn’t want her surname to be used, bought her Broadbeach Waters home about a year ago.
Vanessa said her family would not be directly affected by the RBA rate rise because their mortgage was on a fixed rate, but she was worried about the impact on other people she knew.
“I do have concerns for people who are on variable rate mortgages, people who have just gotten into the market and now they’re a bit worried about it,” she said.
“We can handle the inflationary pressures and we’re not on a variable mortgage. We can handle these pressures, whereas I do have concerns about friends and people I know that are more exposed.
“Even if the overall cost of living goes down (as a result of the RBA rate rise), I think the change in mortgage payments will outweigh that.
“That niche group of people who have just got into the property market and probably overextended themselves a bit, I’d be concerned for them.”
Vanessa said her family had adjusted its spending to cater for the steep rises in the cost of fuel, groceries and travel.
“We’re just trying to generally limit those costs, to cut back a bit on car trips,” she said.
“We’re not doing the big weekend trips away in the car, we’re staying local.”
A study conducted recently for Otivo, an online financial advice service, found that 4.1 million Australians are experiencing financial pressures.
The service also found that many of those people could survive only 22 days if their income was to suddenly cease.
“Looking at our most recent report, which confirms the average Australian, without a safety net and with no government support, can survive less than 22 days on their savings if they were to suddenly lose their job is pretty alarming,” Otivo CEO Paul Feeney said.
“This isn’t a huge amount of time.”
BEST ADVICE
Mortgage holders are being warned to shop around for the best possible deal amid expectations the Reserve Bank of Australia will continue to hike rates.
Westpac is predicting the RBA’s cash rate will rise eight times by next May, taking it to two per cent.
“Borrowers should be aware the RBA is not going to stop at just one hike,” RateCity research director Sally Tindall said.
“The RBA is likely to lift the cash rate multiple times over the next six to 12 months as it works to bring inflation back under control.
“... Variable rate borrowers don’t have to take these RBA hikes lying down. If you haven’t given your mortgage a health check recently, now’s the time to do so.
“The average existing variable-rate customer is currently paying a rate of 2.92 per cent. Yet over 30 lenders are offering at least one variable rate under 2 per cent.”
Despite the rate rises, people wanting to enter the property market on the Gold Coast have been warned not to get their hopes up about any significant reduction in prices.
PRD Real Estate chief economist Dr Diaswati Mardiasmo said that while rate hikes would ultimately decrease the amount of people who could borrow, thus reducing demand, historical trends showed there could actually be an upsurge in buyer activity in the short term.
“History tells us that buyers react in the opposite manner when there is a cash rate hike, entering the market in fear of another cash rate hike and before their borrowing power lessens considerably,” Dr Mardiasmo said. “History also tells us there is a time lag between cash rate movements and property prices.
“... What’s more, we still have a significant supply issue, with fewer new ready-to-sell stock
coming into the market due to rising construction costs.
“The deep supply and demand imbalance right now may result in an even longer lag time
between when the cash rate hike will translate into property prices.”
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