The proportion of younger Australians struggling with higher mortgage rates is a lot worse than feared with one in three missing their repayments, a new survey shows.
The Reserve Bank of Australia’s 10 consecutive interest rate rises since May are biting with Finder’s monthly Cost of Living report showing 31 per cent of Generation Z borrowers, born from 1995 onwards, missing a mortgage repayment during the past six months.
By comparison, 11 per cent of Generation Y – aka Millennials – had missed a repayment, while 8 per cent of Generation X borrower were in that position.
‘Increases in housing costs are having a higher impact on Australian households than any other metric,’ the Finder report said.
‘Younger generations were far more likely to report financial difficulty in managing their mortgage repayment.’
Even if borrowers aren’t yet missing repayments, the cost of living is making it hard to pay the bills, with 37 per cent of respondents telling Finder they were struggling to meet their mortgage obligations.
The Reserve Bank of Australia’s 10 consecutive interest rate rises since May is really biting with Finder’s monthly Cost of Living report showing 31 per cent of Generation Z borrowers, born from 1995 onwards, missing a mortgage repayment during the past six months (pictured is a stock image)
Borrowers with an average, $600,000 mortgage have seen their monthly mortgage repayments surge by 37.5 per cent to $3,683 from $2,678 since May last year.
That equates to annual repayment soaring by more than $12,000.
That is based on the average, discounted home loan rate rising to 6.22 per cent from 3.65 per cent for those with a smaller mortgage deposit of 10 per cent.
This occurred as the RBA cash rate rose to an 11-year high of 3.6 per cent, up from a record-low of 0.1 per cent just nine months ago.
The expiry of ultra-low fixed rate loans is another concern, with the Reserve Bank noting 880,000 mortgages will be moving to a higher ‘revert’ variable rate in 2023.
RateCity said borrowers who fixed their rate at 1.92 per cent in May 2021 faced moving on to a much higher 7.43 per cent rate, that would lead to a 69 per cent surge in monthly repayments.
Reserve Bank of Australia assistant governor Christopher Kent said many borrowers on fixed rates were yet to adjust their spending habits, arguing this contributed to a lag effect with higher interest rates.
‘I suspect many fixed-rate borrowers do not adjust their spending in advance, but rather wait until they roll onto the higher rate,’ he told the KangaNews DCM Summit in Sydney on Monday.
‘Even those that are more forward-looking are likely to make moderate adjustments at first, with further adjustments required at the time of the switch.’
The Reserve Bank of Australia’s 10 interest rate rises since May are causing a sizeable minority of borrowers to struggle paying their bills (pictured is governor Philip Lowe at Sydney’s Bonnie Doon Golf Club)
A borrower is regarded as being in arrears or delinquent if they are 30 days or more behind in their mortgage repayments.
Credit ratings agency Moody’s Investors Service is expecting more borrowers to fall behind in their repayments.
‘Australian residential mortgage delinquency rates, which increased slightly over the fourth quarter of 2022, will continue to rise over 2023 as rising interest rates and high inflation erode borrowers’ capacities to repay debt,’ it said.
‘However, delinquencies will only rise moderately, because low unemployment and prudent lending standards will mitigate risks.’
In the December quarter, 1.07 per cent of residential mortgage-backed securities – or bonds linked to a pool of home loans – were in arrears, up from 0.96 per cent in the September quarter.
That covered the RBA’s first eight rate rises.
ANZ and NAB are both expecting the Reserve Bank to raise interest rates in April and May to 4.1 per cent.
But Westpac and the Commonwealth Bank are predicting one more rate rise during that time, taking it to 3.85 per cent.
Headline inflation surged by a 32-year high rate of 7.8 per cent in 2022, a level well above the RBA’s 2 to 3 per cent target.
Finder polls 1,000 Australians every month, asking them 60 questions about their finances.
