Interest rates decision: new threat facing one fifth of homeowners

Homeowners across the country have been left exposed to a growing problem ahead of the next RBA rates decision because of moves they made during the pandemic.

A wave of Aussie homeowners are starting to regret the amount of money they borrowed from the bank, admitting that they wished they had taken out smaller loans on their properties.

One in five homeowners polled in a recent Finder.com.au study indicated they borrowed too much, with many struggling to meet repayments that have doubled in the past 18 months.

The proportion of those feeling mortgage regret was uniform across incomes.

About 20 per cent of those earning $100,000-$250,000 a year said they borrowed too much, compared to 21 per cent of those earning $50,000-$99,999, Finder revealed.

A separate poll of economists and housing experts indicated they expected more spending to be put on credit cards this year as households struggled with the cost of living.

More homeowners believe they took out too much debt. Picture: Julian Andrews

Finder head of consumer research Graham Cooke said the latest RBA announcement to keep the cash rate on hold would be welcome news for cash-strapped mortgage holders.

“A growing proportion of borrowers are very susceptible to rate rises and are struggling with the amount of debt they borrowed,” he said.

“Some households are scrambling to lower their expenses or increase their earnings to get themselves out of mortgage trouble.

“Mortgage stress stretches across all income brackets, and for some higher wages have led to higher mortgage repayments.

“Households are eroding their savings to meet their mortgage obligations and that financial lifeline will only last them so long.”

Mr Cooke said even with the latest RBA decision to hold rates, it was unlikely homeowners would be out of the woods.

“If inflation doesn’t continue to ease, we are looking at another rate rise early next week,” Mr Cooke said.

It comes as Digital Finance Analytics data indicated loans of over $1m were common in many areas spread around the country – not just with recent buyers but those who bought many years ago.

Digital Finance Analytics data scientist Martin North said a factor inflating household debt was downsizers drawing out equity for renovations, deposits for their children’s homes and other expenses.

“Downtraders have been heavy users of ‘equity mate’: additional cash drawdowns for holidays, improvements, and even helping kids to buy – supported by loose bank lending and rising prices,” he told The Daily Telegraph.

Mr North said more distressed sales would be likely in 2024. “(It) depends on how long this persists,” he said.

“Were rates to be cut then people will survive, but given where inflation is, I’m not sure the RBA can cut before 2025. The run time is the issue. For each month, more are getting caught.”

Recent forecasts from SQM Research indicated higher interest rates would likely drag on the housing market over 2024.

Capital City home prices, which have been growing for much of 2023, were expected to fall by about 1 per cent.

But were the cash rate to rise above 5 per cent, the forecast would change to a generalised price fall of up to 3 per cent.

Originally published as Interest rates decision: new threat facing one fifth of homeowners