Worst suburbs to have a mortgage as inflation and interest rates rise looms

Palm Beach is the Gold Coast’s hottest suburb for new developments, with the light rail expected to run through its centre in coming years. But there’s a much bigger problem facing its residents.

Mortgage stress in some Gold Coast suburbs has increased almost 1000 per cent in four years.

New data released this week by Digital Finance Analytics (DFA) shows 19,881 of the city’s 89,000 properties are under financial stress, up from 15,036 in 2020 and 12,779 in 2018.

Martin North, CEO and founder of Digital Financial Analytics. Picture: Hollie Adams

A comparison of this week’s data and that of 2018 reveal a dramatic shift in stress across the city as a result of the booming real estate and development sector.

The number of stressed households in Palm Beach and Elanora has shot up 965 per cent while Broadbeach has risen 571 per cent.

Southport, Labrador, Coomera and Nerang all recorded increases of more than 100 per cent.

DFA CEO Martin North said the data was a reflection of both the effects of Covid and the suburbs that had experienced significant real estate sales.

Development is booming in Palm Beach. Picture: Jerad Williams

“With Palm Beach, a lot of properties have changed hands and units sold, which means the residents there have a lot of big mortgages while dealing with the increase in property values,” he said.

“During the same period there has been virtually no income growth either.

“It is worth bearing in mind that as the value of properties continue to go up, the land tax and other associated costs also increase.”

Mortgage stress means homeowners are spending at least 30 per cent of their income on loans.

The data shows 2481 homeowners are under enormous financial pressure, up from 1900 in January 2020 and 1500 in January 2019.

The raft of new units sold in Palm Beach has led to mortgage stress skyrocketing in the suburb. Picture: Jerad Williams

The postcode that includes the suburbs of Clear Island Waters, Robina and Merrimac is most vulnerable today, followed by Sovereign Islands, Paradise Point, Hollywell, Biggera Waters and Runaway Bay.

Tugun, Currumbin and Currumbin Valley are among the least affected.

While some suburbs have posted dramatic increases, stress levels in several suburbs have fallen. They include Currumbin (down 33 per cent), Tallebudgera (down 24 per cent) and Ashmore (down 22 per cent).

Mr North said the drops reflected represented several factors.

“It may indicate households which got more support through Covid, in some cases through consolidation of family with children returning to live with their parents,” he said.

“Other facts will relate to people who have had mortgages for some time and have refinanced it at a lower level, meaning their payments have dropped.”

The Reserve Bank of Australia maintained the cash rate at a historic low of 0.10 per cent when it met this week. However, an interest rates hike is expected to occur in August.

Worst suburbs on Coast for mortgage stress

The number of households under mortgage stress has jumped 25 per cent — and that’s before the projected interest rate spikes hit home wallets. 

New data by Digital Finance Analytics (DFA) shows 19,881 of the city’s 89,000 properties are under financial stress. In January 2020, it was 15,036.

It means homeowners are spending at least 30 per cent of their income on loans.

The data shows 2481 homeowners are under enormous financial pressure, up from 1900 in January 2020 and 1500 in January 2019.

The postcode that includes the suburbs of Clear Island Waters, Robina and Merrimac is most vulnerable, followed by Sovereign Islands, Paradise Point, Hollywell, Biggera Waters and Runaway Bay.

Tugun, Currumbin and Currumbin Valley are among the least affected.

DFA boss Martin North said the figures were sobering and warned the Gold Coast would be a “Covid canary” to how the rest of the country fared as interest rates rose to curb spiking inflation rates.

“These figures are much higher than they were two years ago and this has happened while interest rates have been at rock-bottom levels,” he said.

“They are quite sobering and the Gold Coast will be the Covid canary – it is a really good indicator of what is happening more broadly around the country.

“On the Gold Coast a lot of people who work in tourism have been under the gun for some time and my fear is that when interest rates rise, households will also see the pressure on their budgets rise.”

The Reserve Bank of Australia is expected to maintain the cash rate at a historic low of 0.10 per cent when it holds its first monthly meeting of the year on Tuesday, but economists are already “pricing in” increases as inflation rises.

The central bank has repeatedly insisted it won’t lift the rate until 2024, or 2023 at the earliest, but Westpac dramatically brought forward its expectation a hike will come after the RBA’s August 2 meeting.

The bank’s chief economist Bill Evans has predicted an initial 15 basis-point rise followed by a further hike of 25 basis points in October – bringing the cash rate to 0.5 per cent.

Data released last week revealed inflation rose by 3.5 per cent in the final quarter of 2021.

The combination of this inflation and interest rate hike means homeowners with an average mortgage of $500,000 will pay around $168 more per month.

Andrew Bell. Picture: Richard Gosling

Leading real estate agent Andrew Bell, of Ray White Surfers Paradise, said many buyers had begun factoring in the potential rates rise.

He said the inevitable change to the borrowing rate would also potentially avert a “property bubble”.

“Everyone is aware of it and there has been a lot of talk about rates going up the past few weeks, since the most recent inflation figures came out,” he said.

“No question, buyers are going to have to factor this in and it does raise an element of uncertainty in the market, though the Gold Coast can feel more confident than it has in the past because the migration from the south continues and as long as this is the case, we will not see a significant softening of the market.

James Hasselle Photo: Regi Varghese

“But that said, a modest slowdown actually would be healthy for the market because it would prevent a bubble from forming.”

James Hasselle, owner of Mortgage Choice Miami-Burleigh-Palm Beach, said there had been a “big increase” in the number of people inquiring about how to best manage their mortgages in the past three months.

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