$370b worth of fixed rate mortgages to end in 2023 causing pain for Aussies

Homeowners are facing a scary situation where their repayments could soar by up to 65 per cent and there are concerns they haven’t saved enough for the hikes.

A whopping $370 billion worth of mortgages are due to come off fixed rates in 2023 sending alarm bells that Australian homeowners will face repayments that could skyrocket as much 65 per cent.

It cames as the Reserve Bank of Australia hiked interest rates for the eighth consecutive time, raising rates by 0.25 per cent, taking them to 3.1 per cent and lifting the official cash rate to its highest level in 10 years.

Interest rates were previously at a record low of 0.1 per cent and millions of Aussies signed up to home loans with cheap rates and are yet to feel the pain as rates soar.

Westpac and ANZ expect interest rates to peak at 3.85 per cent in May, while other experts have predicted that Australians will be hit by three more interest rates hikes next year.

This means nearly half of all new loans in 2021 which scored interest rates below 2 per cent are facing rates as high as 7.2 per cent, according to RateCity.

For a homeowner who borrowed $750,000 and had a 2 year fixed rate of 1.94 per cent – the average offer among the big fours banks 18 months ago – is facing paying $2000 or 65 per cent more as they are forced on to higher rates.

Their monthly repayments would also soar to $5200 if their variable cash rate is as high as 7.2 per cent.

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There is $370b worth of fixed mortgages due to roll off into big variable rates. Picture: Gaye Gerard/NewsCorp/Daily Telegraph

For those who are able to refinance, a 6 per cent rate would still mean repayments had increased by more than $1500 a month or a huge 50 per cent to $4700, RateCity data showed.

Homeowners with a $1 million mortgage are currently paying $4209 but if they were to roll on to rates of 7.16 per cent this would see their repayments skyrocket to $6932.

Last month, RBA governor Philip Lowe apologised to Australians who may regret taking out a home loan off the back of guidance that interest rates would remain unchanged until 2024.

Countless Aussies took out mortgages over this period, at a time when house prices, and therefore mortgages, had never been more expensive, with many taking those crucial four words – “2024 at the earliest” – into consideration when making such a momentous life decision.

Governor of the Reserve Bank of Australia, Philip Lowe. Picture: Monique Harmer/NewsWire

Treasurer Jim Chalmers said the latest rate hike was “very difficult news” for many homeowners.

“This is the Christmas present that no Australian homeowner wanted. I think we are seeing the beginnings of the economic ­impact of these rate rises,” he told Sky News.

“Australians with a mortgage and particularly those with a big mortgage are already feeling the impacts of these rate rises since before the election. But the economic impact is still to play out, still ahead of us.”

Barrenjoey chief economist Jo Masters said around $35 billion of fixed rate loans would roll off from April next year, $44 billion in May and around $30 to $40 billion over the rest of the year, adding up to $370 billion in 2023.

Australians are expected to tighten their discretionary spending as they get hit by rising repayments. Picture: Getty Images

Ms Masters said discretionary spending would take a hit but predicted the RBA would continue to raise rates in February and March.

She said there was little insight into what sort of buffer homeowners on fixed interest rates that were about to end had to weather rising repayments.

“I imagine the savings are not that big, but you would think some of those borrowers have been putting a bit aside in a traditional savings account, and which could be some of that additional $260bn cash put in bank accounts since the start of the pandemic,” she told The Australian.

RateCity head of research Sally Tindall added that only 4 per cent of new mortgages were being approved on fixed rates because currently they were not “competitive” and it was a “massive gamble” to go that route.