A widely expected interest rate rise this week could see widespread impact on Aussie households with an alarming number of homeowners claiming they’re one interest rate hike from defaulting on their loans, according to a new research.
According to new Finder data, almost one in 10 (9 per cent) mortgage holders could no longer sustain the cost of their mortgage if they were faced with one or two rate rises.
A further 18 per cent of homeowners polled said they would default on their mortgage if there were three more hikes.
Additional data revealed 42 per cent of Aussies had less than $1,000 in savings.
MORE: Sydney suburbs pushed to the brink by rate hikes
There are mounting predictions of another rate hike on Tuesday, when the RBA announce their decision on May 05. Picture: NewsWire / Gaye Gerard
Finder’s money and home loans expert Richard Whitten said many Australians are walking a financial tightrope.
“This research reveals how little buffer many households have left,” he said.
“When you consider how persistently high the cost of living has been over many years, it’s no surprise so many borrowers are nearing their limit again.”
Mr Whitten said a significant portion of households are already at breaking point.
“For a lot of borrowers, there’s very little wiggle room left in the budget,” he said.
“Even one or two more rate rises could be enough to push some households into default.”
Mr Whitten said buyers are going to be more exposed in some ways in Sydney.
“Prices are so much higher compared to everywhere else,” he said.
“People who’ve borrowed or bought property recently are the most exposed.”
MORE: RBA rate hikes hit Sydney home prices hard
Richard Whitten. Picture: Supplied
Finder data in April also spotlights 39 per cent of Aussie homeowners say they are struggling to pay their mortgage and 44 per cent of Aussie tenants said they were struggling to pay their rent.
While 35 per cent of Australians (who don’t currently own property) don’t think they’ll ever be able to afford their own home.
Excessive house and rent prices in Sydney could see a substantial blow to those who call the city home.
With fear about the impact of another interest rate rise intensifying, The Daily Telegraph asked Sydneysiders in the CBD how they felt about another potential hike, with the responses affording telling insight into current cost-of-living pressures.
Sydney homeowner Joel Gollan said like many other Aussies with a mortgage he was feeling nervous about another potential rate increase. Picture: Justin Lloyd
“I think like most of Australia’s population who has a mortgage at the moment, I’m a little bit nervous about another rate increase,” homeowner Joel Gollan said.
“You just have to tighten the belt a bit.”
According to homeowner Kylie Andrews, who lives with her teenage boys, further rate hikes would see their family make certain cuts to spending.
“You try and cut down on other things, maybe not go on as many holidays as previously,” she said.
“We’ve still got school fees and things like that but you just try and make it work.
“Maybe dining out not as much.”
Sydney homeowner Kylie Andrews said cutting back on holidays and dining out was a potential way to help curb rising prices. Picture: Justin Lloyd
Sydney homeowner Tahnee Clughessy said she was cutting back spending on groceries.
“Everything is really expensive, fuel as well, everything is out of control at the moment,” she said.
“Everybody, all of my friends are struggling at the moment and some people just don’t know how they are going to continue on, the gap is just too big now.”
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Sydney homeowner Tahnee Clughessy said she was cutting back on groceries due to the cost of living crunch. Picture: Justin Lloyd
Sydney renter Jack Edwards was looking into purchasing a home earlier in the year, he currently pays $900 a week in rent.
“I think I would have been pretty stressed if I were to have pursued that,” he said.
In Sydney for three months from the UK, Tom Sanders is renting in the CBD with his partner paying $950 a week.
“I’m working part time and she’s working full time and we also have an online income as well so we have technically three streams of income,” he said.
“We’re pretty much spending all that we’re earning. If we were to live here for longer, we’d probably have to look at getting something a bit cheaper.”
Wednesday’s figures released by the Australian Bureau of Statistics are the first to capture the impact of the war, revealing inflation has risen to 4.6 per cent, rising from 3.7 per cent last month.
Tom Sanders rents in Sydney CBD and said he and his partner are spending nearly all they are earning from three income streams. Picture: Justin Lloyd
Canstar Director of Research Sally Tindall said there is extreme pressure on the RBA to take further action to get inflation back down to target and ideally a mid point of 2.5 per cent.
“At the end of next week’s board meeting a cash rate hike is very much a possibility, but it’s not a given,” she said.
“We don’t see many split decisions from the RBA board, but the last meeting’s decision was a split one because the case to hold and the case to hike is so finely balanced due to the implications further hikes could have on the economy.
“We expect yet another very heated debate around the RBA board table on Monday and Tuesday deliberating on whether to actually hike or to put rates back on hold to buy more time to see how the last two hikes filter through to the economy.”
All four big banks are predicting a hike on Tuesday, with Westpac also predicting two further rises in June and August.
“This would take Australia’s cash rate setting to 4.85%,” Ms Tindall said.
“It would be the highest since 2008 when Australia was coming off the back of the GFC, it would be extreme pressure for households with mortgages across the country and would no doubt flow through to some renters as well, putting a large cohort of people under even more pressure than they are today.
Sally Tindall. Picture: Tim Hunter.
“I would say if you have a mortgage, do the math on a rate hike on Tuesday, but also do the math on Westpac’s forecast of three more hikes in total to understand exactly what your monthly repayments might be if this scenario eventuated.”
According to Canstar research, for someone with a $600,000 mortgage and 25 years remaining at the start of the hikes, a 0.25 percentage point cash rate hike in May would increase a borrower’s minimum monthly repayments by $91.
On a $1m mortgage, a hike on Tuesday would increase minimum months mortgage repayments to about $152, while three hikes would be $453.
According to Ms Tindall, this would be particularly difficult for those carrying around big debts or in property hotspots like Sydney where prices are already so high. She added this could also see significant impact for renters.
“For renters in places like Sydney, it’s not easy to be able to get relief from a landlord,” she said.
“You can’t exactly pull up stumps and move to a cheaper property because you have to find
one for starters, then even the cost of moving would potentially tip a renter over the edge.
“They could be staring down the barrel of further rental increases in the months ahead, particularly if we see up to three more rate hikes still to come, where landlords who are also under pressure in their investment property look to lift the rent in order to recoup some of those costs.”
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