Home loan interest rates: whether a cliff or a hill, we’re doing well

Home loan borrowers feared the fixed-rate mortgage cliff after huge interest rate spikes, but it’s seemed more like a rolling hill.

The dreaded mortgage cliff that many worried would send countless households into financial oblivion appears successfully navigated by resilient consumers.

However, some say the worst impact may still come, as hundreds of thousands of fixed-rate home loans expire this year and suffer a massive instant interest rate rise.

The cliff – caused by peoples’ fixed-rate home loans with interest rates near 2 per cent expiring and suddenly shifting to new rates above 6 per cent – is causing some hardship but regulators say overall levels of stressed borrowers remain low.

Overdue loans had more than doubled since late 2022 to 0.6 per cent, and the Australian Prudential Regulation Authority said recently this was “still below historical levels”.

Canstar’s Steve Mickenbecker said those with big mortgages were hit hard. Picture: Supplied

Westpac customers receiving hardship assistance rose from 0.5 to 0.86 per cent of its loans in the nine months to December, while between them the big four banks have about $90bn of fixed loans expiring within the next six months and another $90bn-plus next year.

Canstar group executive financial services Steve Mickenbecker said the mortgage cliff remained, “but most people seem to have absorbed it, which was really surprising”.

“The pandemic did teach us a little more austerity so that has had an effect,” he said.

However, the mortgage sector was “two-speed” and the overall numbers tended to hide the people who were suffering, Mr Mickenbecker said.

He said borrowers who began their mortgages a decade ago, when home prices were much lower, and had paid down their loans would not feel the effects of the cliff anywhere near those who took out large mortgages more recently.

“My fear is that those who are rolling off now are the people who borrowed at 2 per cent, and a lot would be first home buyers with big mortgages,” Mr Mickenbecker said.

“These could be the ones that will be in trouble – there still could be a bit of pain in 2024 and 2025. It’s not over yet.”

The jump in repayments on a typical $600,000 mortgage from a 2 per cent fixed rate to the current 6.9 per cent average variable rate is $1734 a month, Canstar says.

The Mortgage & Finance Association of Australia said 880,000 home loans came off ultra-low fixed rates last year and another 450,000 were expected to expire this year.

“We know that borrowers coming off their fixed rates have been doing so in an environment of markedly higher interest rates following 13 interest rate rises since May 2022,” MFAA CEO Anja Pannek said.

A new MFAA survey found 83 per cent of mortgage brokers reported their clients were more worried about meeting repayments than they were six months ago, slightly lower than last year.

MFAA CEO Anja Pannek says hardship inquiries are rising. Picture: Supplied

“There are many borrowers struggling, with the survey indicating that hardship inquiries, while still low, are starting to increase,” Ms Pannek said.

RateCity research director Sally Tindall said fixed rate borrowers had longer to prepare for the cliff, and many had built up buffers.

It’s an incredible amount of borrowers who’ve had to scale a giant jump in repayments in one go,” she said.

“In many cases borrowers have gone from rates starting in the ones, to interest rates starting with a six or even a seven.

“The fact that so many have managed this leap successfully is evidence Australians have been focused on making sure they can tackle whatever financial challenge the RBA throws their way.”

Originally published as Home loan interest rates: whether a cliff or a hill, we’re doing well