What an interest rate rise will mean for every QLD suburb

Homeowners in more than 80 Queensland suburbs may struggle to pay their mortgage when interest rates begin to rise, but even a rise of just 1 per cent could push 124 suburbs into ‘mortgage stress’. FIND YOUR SUBURB

Homeowners in more than 80 Queensland suburbs may struggle to pay their mortgage when official interest rates begin to rise, with many pushing their budgets to the limit in the pandemic property boom.

But new data shows that even a rate rise of just one per cent could push households in 124 suburbs into “mortgage stress”.

The official cash rate set by the Reserve Bank of Australia sits at a record low 0.1 per cent, but some banks have already begun lifting their own fixed rates, with pundits tipping an official rate rise may come sooner than expected.

The Australian Prudential Regulation Authority (APRA) has also lifted its minimum interest rate buffer to 3 per cent.

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There have been some huge sales in Brisbane during the Covid-19 pandemic

REA Group experts analysed current median property values, average incomes (2018/19, ATO) and current average monthly mortgage repayments with a 2.5 per cent interest rate in each Queensland suburb.

The analysts then applied interest rate hikes of 0.25, 0.5 and 1 per cent, with many of the suburbs facing the biggest financial pile-on located in markets where prices have exploded.

The data showed there are currently 90 suburbs where double income households contribute more than 28 per cent – the general benchmark – of their total income to their mortgage repayments.

But that number blows out to a whopping 159 suburbs when rates rise by one per cent.

REA PropTrack economist Paul Ryan said all borrowers should prepare for higher interest rates, with a one percentage point rise on a $500,000 mortgage increasing repayments by almost $300 a month.

“With strong recent increases in housing prices, and an extended period of exceptionally low borrowing costs, many Australians have taken on bigger mortgages than ever before,” he said.

“With markets expecting increased interest rates as early as next year, borrowers may find repayments increasing earlier than expected.”

In Brisbane, double income households in Robertson currently contribute 47.9 per cent of their total income on their mortgage, but that income-to-repayment ratio blows out to 49.4 per cent with a rate hike of 0.25 per cent, 51.4 per cent with an increase of 0.5 per cent and 54.4 per cent with a one per cent rate hike.

That pressure doubles for single income households, with the average individual annual income in Roberston just $48,745, according to ATO figures.

But with the median house values now $1.23 million, an increase of 18.4 per cent in the 12 months to October, many of those average workers have already been priced out of that local market.

This house in Robertson recently sold for $1.085m, less than the suburbs median house value

Households in sought-after New Farm may also find pressure on their hip pocket, with double income households currently contributing 39.1 per cent of their income to mortgage repayments in the $2.109 million suburb.

But that impost on the household budget ratchets up to 44.5 per cent with an interest rate rise of one percentage point.

This stunning character house in New Farm recently sold for $4.25m.

Seven of the top 10 metro suburbs where an interest rate rise may hit the hardest were in Brisbane’s million dollar-plus club suburbs, the research revealed.

This property in Hendra sold for a new suburb record of $4.5m a whopping $300,000 above reserve

For unit owners, the greatest pain will be felt in Rochedale, Scarborough and Sunnybank Hills, where wage growth has failed to keep pace with price rises.

“Brisbane shows two strong areas where repayments on recent sales are high relative to incomes – close to the CBD and to the south of the city,” Mr Ryan said.

In the regions, homeowners in Queensland’s most expensive suburb – Sunshine Beach on the Sunshine Coast – are expected to feel the greatest pinch when interest rates go up, with 74.6 per cent of a double household budget – or $8851 a month – going towards average monthly mortgage repayments.

This Sunshine Beach house recently sold for $14.25m, but those shopping at this level are unlikely to be concerned about rates going up

Mermaid Beach, home to Millionaires Row, Hedges Avenue, is also a suburb to watch when rates rise, but the suburb is also home to mining magnates and business moguls.

There, the average annual salary is $66,002, a figure likely skewed by younger buyers and renters in the area.

Harcourts Coastal agent Tolemy Stevens said around 80 per cent of luxury beachfront deals on the Gold Coast were cash-unconditional sales to affluent owners who did not require finance, and so would remain immune from mortgage pressure.

“And further, most of those clients were purchasing luxury holiday homes and did not ever intend to live in those suburbs fulltime, so based on the evidence of the last 3, 6 or even 12 months I don’t see a rate rise affecting those astute purchasers at all,” Mr Stevens said.

“There is still a massive volume of buyers who I don’t believe would even baulk at the sight of a rise or two, and therefore I see this market still with plenty of steam in it, and the first evidence of that will be when borders reopen on December 17 and all the interstate buyers come to town and take everything we’ve got,” he said.

An interstate buyer desperate to secure this Mermaid Waters house ahead of auction made a successful offer of $4.35 million, smashing the suburb record by $50,000

Of the top 10 suburbs in regional Queensland where income to repayment ratios for both houses and units were expected to blow out as rates rise, all were located on the Gold Coast and Sunshine Coast.

“Holiday regions outside of capital cities feature prominently; these regions have seen strong price growth over the past two years, driven by an exodus from cities to the regions, elevating values,” Mr Ryan said.

“This list shows the challenge local residents have of competing in very strong regional markets at the moment, particularly in coastal areas.”

The Sunshine Coast has been a magnet for cashed-up Covid escapees, which has put huge pressure on property prices.

Mr Ryan said there had been some mammoth sales in coastal markets, but the wages attached to those buyers were not yet fully understood, and may never be considered in the local wages data.

“It is clear the buyer demographic in places like the Gold Coast has changed, with people on higher salaries buying up holiday houses who may never live there permanently,” he said.

“But while that wage data may never be reflected in the local statistics, those sales have had a big impact on median sales prices. And that's where there is conflict with locals.”

At the other end of the spectrum, the suburbs where the income-to-repayment ratio was the lowest were mostly located in mining regions, where house prices crashed during the resources downturn.

This house in Moranbah recently sold for $410,000

However, like many suburbs in Queensland, those same suburbs have experienced record low vacancy rates and extraordinary yields for investors.

The largest major centre with the lowest income-to-repayment ratio was Rockhampton, with double income households currently contributing just 5.1 per cent of their income to their mortgage.

That rises to 5.8 per cent with a one per cent rate rise.

Elsewhere, the current income-to-repayment ratio is also below 10 per cent across many suburbs in Townsville, Mackay, Bundaberg, the Darling Downs, and the Far North, meaning

buyers in those regions are likely to cope when rates do rise.

House values are rising in Townsville but the capital of the North remains affordable

Keyes & Co Townsville agent Damien Keyes said the regions offered “more bang for your buck”, and even if rates rose, there would still be plenty of value to be found.

“Affordability isn’t really a conversation we are having,” he said. “We are seeing more people selling out of the overheated markets and looking at places like Townsville.

“And for anyone whose jobs survived Covid, they see this as a green light to upgrade their family castle.

“The income-to-repayment ratio is very attractive.”

And it is for that reason that Mr Ryan believes the exodus to the regions is far from over.

“I am optimistic that will continue and will have a positive effect on a wider array of locations,” he said.

Originally published as What an interest rate rise will mean for every QLD suburb