Many of the homeowners struggling most bought properties when rates were at record lows and are still higher rates than back then, despite recent cuts.
Years of soaring bills have left more than one in two mortgaged NSW households in the red each month — even after falls in interest rates.
Fresh figures have revealed mortgage stress levels have been steadily climbing all year despite this year’s three cash rate cuts, which banks have largely passed on in full to homeowners.
Close to 560,000 NSW households were reported to be in mortgage stress at the end of September, according to the Digital Finance Analytics data.
This represented 51.2 per cent of all NSW households with a home loan, up from the 49.1 per cent reported to be under stress in January – a month before the Reserve Bank announced this year’s first cash rate cut.
It’s a situation that may worsen, with economists noting ABS data showing higher than expected inflation this week has largely scuppered hopes of further interest rate cuts this year.
“Mortgage stress” was defined in the DFA study as a situation where monthly household income was insufficient to cover mortgage payments and other outgoings on a regular basis.
This meant the households were digging into savings, racking up credit card debt or other measures like leaning on help from friends and family to get by each month.
MORE: Bank’s brutal reaction to couple’s loan plea
Michele Bullock, RBA Governor, is expected to announce a hold in rates next week.
Experts explained that the shock mortgage stress rise was the result of day to day cost of living blowing a hole in family budgets, with savings from lower mortgage rates failing to make up for rises in other costs.
NSW mortgage holders were also carrying debts that had been challenging to pay down before the rate cuts and mortgage relief this year hasn’t been enough to improve people’s financial health, it was reported.
State homeowners currently have average mortgage debt of $816,000 and those paying a typical variable home loan rate would have seen their repayments drop by about $370 a month after the three cuts.
That saving has become eroded by rises in the prices of groceries, insurance, fuel and, notably, electricity.
MORE: Big bank’s ‘heartless’ move as rate changes loom
Buyers have often been pressured to borrow more due to intense competition. Recent Sydney auctions have attracted huge crowds. Picture: Julian Andrews
The DFA data was based on the results from a series of questions in weekly surveys and focus groups with households across each postcode, which were modelled across areas to determine mortgage stress levels. The results are provided to financial institutions, including hedge funds.
DFA revealed that mortgage stress levels were not equally felt across the city, with homeowners in Sydney’s southwest having more frequent “cash flow pressure” as a result of mortgage payments.
More than 90 per cent of homeowners were deemed to be struggling in the postcodes of Liverpool, Campbelltown, Mount Annan, Bossley Park and Mount Druitt.
There were also parts of the northwest were mortgage stress levels were elevated, including Riverstone, Castle Hill and Quakers Hill.
MORE: Huge promise Hemsworths made about Byron Bay home
Digital Financa Analytics analyst Martin North said high mortgage stress levels were a consequence of Sydney’s inflated home prices.
DFA data scientist Martin North explained that a high concentration of new housing in these areas meant more homeowners had bought in recent years and were paying down larger loans.
These areas also attracted high spending during the Covid-era housing boom, when interest rates were at record lows, Mr North said.
It’s meant that even with repayments becoming cheaper than a year ago, many mortgage holders in these areas were still paying much higher amounts than when they first bought their properties.
“Higher home prices have led to bigger mortgages, with debt growing much faster than incomes,” Mr North said.
“Costs of living are still rising … (but) incomes are still stagnant despite more households with two-plus incomes and overtime.
Source: DFA
“As savings are drained away, people stay in this stressed state for longer, putting more pressure on their finances, causing them to grab additional loans, even buy-now pay later and pay-day loans to get by, as well as credit cards.
“I should of course say there are other households with plenty of cash flow, paying ahead on their mortgages, and saving more. We see a big split between the two cohorts.”
Credit reporting group Illion revealed there had been the “greatest, most elevated level of credit stress among consumers since Covid”.
Illion head of modelling Barrett Hasseldine said there had been a national rise in people “falling behind on their credit card, home loan and personal loan payments” and those “entering hardship”.
Mortgage broker and economist Joseph Daoud of It’s Simple Finance said mortgage stress levels were a symptom of Sydney’s high property prices.
Rapid rises in prices were pressuring homeowners to take on much larger debt to be able to compete for houses, but the price increases had the twin effect of encouraging longer-term homeowners to take on more debt, Mr Daoud explained.
“Most people refinancing their loans want to draw out equity to buy an investment property or to upgrade their house,” he said, adding that this pushed them deeper into debt. “The whole country has become property mad.”
English (US) · 