Shock amount of debt homeowners have in each suburb revealed

There are now multiple suburbs where every mortgage holder owes the bank $1m-plus, including downsizers who continually topped up their loans for extra cash, new loan data shows.

Sydney homeowners are living on a shaky foundation of debt that is at risk of crashing down if the Reserve Bank hikes interest rates ahead of Christmas, alarming research has revealed.

The Digital Finance Analytics study provided exclusively to The Daily Telegraph showed about one in six homeowners in Sydney owed more than $1m on their loans.

There were also 53 postcodes where loans with more than $1m still owing were the norm or, in some cases, constituted every home loan outstanding in the area.

These mega mortgages were putting the homeowners in a precarious position where even the slightest rate rise would strike a heavy financial blow.

Mortgage holders with debts over $1m were a mix of downsizers and first-home buyers who snapped up properties during the pandemic.

Governor of the Reserve Bank of Australia Michele Bullock has not ruled out further rate rises. Picture: Martin Ollman

They also included those who purchased properties decades ago but drew out much of their equity through refinancing deals with banks, according to the DFA data.

It comes as economists warned that another rate rise at the next RBA board meeting on Tuesday remained a possibility as the central bank continued its battle against “entrenched inflation” in the economy.

Digital Finance Analytics data scientist Martin North said many homeowners were already battling with the high cost of repayments and would struggle to pay even more interest.

“We see about half of households already in cash flow stress,” he said. “The longer rates stay higher, the worse it gets.

“So far, low unemployment is a buffer, but if that changes, then more will struggle. We are already seeing some default metrics rising.”

Mortgage debt of over $1m is the norm in areas like Kingsgrove in the inner southwest.

Mr North said Sydney’s larger mortgages were not simply a function of higher home prices – many long-term owners were continually topping up their loans.

This involved entering refinancing deals with banks to draw out equity for various expenses, Mr North said, adding that many of the owners taking these steps were downsizers entering retirement.

“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 said.

Mr North said the larger amount of debt Sydney homeowners carried relative to their income made them more vulnerable to interest rate rises than those in other capitals.

It meant Sydney households were “more likely to trim their spending”, he said.

“Not all households are equally exposed,” Mr North said. “Some have big incomes to match, but others have little equity and now face repayments up to 65 per cent of their net income. This is a big issue.”

Postcodes where the average mortgage holder still owed more than $1m were spread across the inner west, north shore, northern beaches, eastern suburbs and southwest.

Many included affluent suburbs where homeowners tended to have high incomes, but there were also areas with blue collar roots such as Kingsgrove in the southwest and Tempe in the inner west. There is no suggestion the buyers of properties illustrating this story are under mortgage stress

Mr North said those in the newer high growth corridors – many of which were in outer suburbs – would have “the biggest headaches” because rates of mortgages stress were higher.

Close to 95 per cent of borrowing households in the Campbelltown area were spending more than they were earning each month, while in Blacktown and Liverpool the figure was near 87 per cent, according to DFA.

Mortgage Choice broker James Algar said owners with higher debts tended to have higher incomes but even they would be struggling if they had purchased in recent years.

RateCity research director Sally Tindall said repayment increases on $1m debt could rattle a family’s finances. Picture: Tim Hunter.

This was because their ability to repay their loans was stress tested at lower rates than those on offer now.

These owners would not qualify for the loans they currently have if they applied today on the grounds they wouldn’t be able to afford them, Mr Algar said.

Rate City research director Sally Tindall said a homeowner with a $1m mortgage debt would be paying about $2,420 extra each month than they did before the first rate hike last year and another 0.25 per cent rise would add another $152 to the monthly cost.

“An unexpected bill of $1,000 or $2,000 can really rattle a family’s finances. A recurring bill this large is enough to blow the family budget up entirely,” she said.

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.”

Originally published as Shock amount of debt homeowners have in each suburb revealed