How high-income earners are coping with higher interest rates

First home owners – even those on high incomes who bought a home before interest rates rose – are struggling so much with higher repayments that some are moving back in with family.

Others dealing with soaring mortgage repayments and the rising cost of living have all but exhausted their savings buffers and are considering downsizing or tree-changing, mortgage brokers say.

First home owners have been hit with higher mortgage repayments.Credit: Flavio Brancaleone

This comes after the Reserve Bank lifted interest rates 13 times from rock-bottom levels and held them steady for more than a year, longer than economists initially predicted. Rate relief is now not seen as likely until at least February and perhaps May.

Chief executive of mortgage brokerage Shore Financial Theo Chambers describes a trend among young couples with combined household incomes of $400,000 to $500,000, a $2 million-plus mortgage in affluent areas of Sydney and two children at childcare.

“They can’t afford their home and they’re moving in with parents,” he said. “They bought at 2 per cent interest rates. They would have thought ‘we can easily afford a $3 million house in Bondi’.”

They have since had children, now pay roughly $7000 a month in childcare fees and do not qualify for a subsidy. They are already on competitive interest rates and Chambers says he is unable to refinance them into cheaper deals.

They have cut out discretionary spending and holidays, have cut back to one car and are waiting for interest rate relief.

“There’s a lot of people moving back in with family so they can get rid of childcare fees, rent out their property, they’re not selling.

“They can see in a few years, once their kids go to school, things will be easier. While their kids are still at daycare, it’s so expensive for them to still be working.”

Further, in the suburbs where they have bought, $3 million does not buy a large house – so once they have had two children, the family feels the squeeze.

“We’re seeing lots of people that are stuck,” Chambers said.

“You’re really stretched. You’re earning a really attractive income, you’ve done all the right things in your life to get there, you’ve ticked every box you should have ticked, but you’re struggling ... People are pretty financially stressed.”

Mortgage Choice Dee Why principal James Algar deals with clients who hoped interest rates would fall and are now questioning how much longer they can keep meeting repayments.

“We are hearing from more clients who have moved through their savings or are starting to feel like they can’t really continue with the payments as they were,” he said.

Some households have reached the end of their savings.Credit: Rhett Wyman

They are not in true distress or contemplating a “fire sale”, he said, although they are not comfortable carrying on at the same level of repayments. For a handful, the options are downsizing to reduce the mortgage or moving.

Owners who have been in the property market for five years or less are most affected, he said, including those who have added to their family in that time and now face childcare costs. Some are cutting out children’s recreational activities or other spending.

“Where we are, you’re typically talking about households with an income of $200,000 or more just to buy an entry-level property on the beaches,” he said.

“Some of those people have benefited a little bit from the tax breaks in July, but compared to the increase they’ve copped on everything else, it’s still a relatively small amount of relief.”

Atelier Wealth managing director Aaron Christie-David acknowledged that home owners on higher incomes have some levers to pull and are cutting discretionary spending and lavish overseas holidays and extracurricular activities for children.

“Someone on $70,000-$80,000 doesn’t really have that fat there to then buffer that storm,” he said.

Demographer Simon Kuestenmacher said housing affordability depends not just on house prices but the ratio of house prices to incomes.

“Which is now why we have a very expensive market like Sydney where even a very solid professional dual-income couple struggles,” the co-founder of The Demographics Group said.

“Not even the rich can comfortably afford a home. It’s not the most tragic thing … [But] the situation for people in the middle is absolutely dire.”

He said this leads to a resentful young population who are turning away from major political parties.

As for social cohesion, “It’s an absolute catastrophe – it’s that simple. You have more and more young people who look at the system and say ‘that thing isn’t working for me.’

“The idea is quite serious – that we have a lot of young people who don’t like the system, and that’s dangerous.”