Mortgage stress doubles as home loans rise 2 percentage points

The RBA’s latest Financial Stability Review found that a 200 basis point hike in interest rates could drop house prices by 15%.

The Reserve Bank paper found that 90% of those with fixed-rate home loans maturing in the next two years could see their repayments swell by as much as 20% if interest rates rose by 200 basis points.

The Commonwealth Bank’s half-year results suggest $89 billion in fixed-rate home loans will mature in 2023.

The RBA paper suggests that just over 40% of adjustable rate borrowers made enough monthly repayments over the past year to erase a 200 basis point difference.

A quarter of these borrowers would see their repayments increase by more than 30%.

Those under mortgage stress – more than 30% of income goes on the mortgage – would double from 10% to 20%.

Already some fixed rate home loans are up more than 200 basis points over the past year.


However, on average, Australians are still far ahead on their mortgage payments.

During the pandemic, the average (median) owner-occupier of an adjustable rate loan in February was 21 months ahead of their mortgage payments.

A 200 basis point rise in home loan rates could drive this 19-month decline.

Before the pandemic, the average buffer was 10 months.

rate hikes

RBA data shows many term home loan rates are higher than before the pandemic.

At the end of February 2022, the average owner-occupier fixed interest rate over three years was 3.27% pa – it was last higher at the end of September 2019 at 3.29% pa

Fixed-interest home loans for investors over three years also averaged 3.52% pa – last at this level at the end of January 2020 (3.57% pa)

They are expected to trend higher when the March and April data are released amid a spate of fixed rate hikes in recent weeks.

Fixed maturities under three years still have some catching up to do, while variable loans generally continue to trend downwards, as the chart below shows.

These data are e.g New Loans funded in the month, providing a sharper snapshot of where the market is heading than Everyone outstanding loans.

The average size of home loans is increasing

While there was a slight setback in February, ABS data shows that the average home loan size for owner-occupiers and investors has risen sharply since the pandemic began.

In February 2020, the average loan size for owner-occupiers was USD 480,000 and USD 481,000 for investors.

Fast forward two years later and it’s $596,000 and $602,000 respectively as shown in the chart below.

Average home prices are also rising sharply

ABS data shows that the average home price across Australia reached $920,100 at the end of December 2021.

It rose to more than $1.2 million across New South Wales.

Note that “mid” prices can be pushed up by a few millions worth of homes.

Domain data for the December quarter shows that the average home price in major cities also topped $1 million.

However, CoreLogic data showed for the first time in 17 months that Sydney saw property values ​​fall.

Higher mortgage rates and high real estate prices make Homer special.

A decade under influence: No RBA rate hike since 2010

At Tuesday’s monetary policy meeting, the Reserve Bank board decided to keep interest rates on hold at 0.10%, or 10 basis points.

It has been at this record low since November 2020.

However, the deletion of the word “patient” from his statement signaled to the market that the cash rate could soon be hiked.

All four of Australia’s major banks have now announced rate hikes for June.

ANZ economists forecast that the policy rate will reach 2.00% by the end of 2023, meaning eight rate hikes are expected between June and then – a 15 basis point hike followed by seven 25 basis point hikes.

Most recently, in November 2010, the Reserve Bank increased its key interest rate by 25 basis points to 4.75%.

Since then, the central bank has made 18 cuts, including an unprecedented two in the single month of March 2020.

For the RBA to raise interest rates in June, Westpac chief economist Bill Evans said a few things have to happen first.

He said that will depend on new inflation data to be released on April 27, wages data on May 18 and more labor force data to be released in these months.

An upcoming federal election in mid to late May is also throwing a spanner in the works.

“Even if the May election brought some complications for monetary policy, it seems from this change in rhetoric that the board is willing to accept that a specific debate about an immediate rate hike after the May 14 or 21 election can be considered and emphasizes the independence of the Reserve Bank,” said Mr Evans.

“We were surprised by this very significant change of heart by the board since the March meeting.”


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Buying a home or looking for refinance? The table below shows home loans with some of the lowest interest rates in the owner-occupier market.



lender

fare type offset Draw again Ongoing fee prepayments LVR Lump sum repayment Additional Refunds pre-approval

variable More details
UNLIMITED REDRAWSSPECIAL OFFER

Smart Booster Discount Home Loan Floating – 2 Years (LVR
  • Fast turnaround times, can meet 30-day billing
  • Minimum 20% down payment for purchase and refinancing
  • No ongoing or monthly fees, add offset for 0.10%

variable More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan – Prime (Principal and Interest) (Used by Owner) (LVR
  • No upfront or ongoing fees
  • 100% full compensation account
  • Additional Repayments + Redraw Services

variable More details
ZERO APPLICATION FEESFEE-FREE BALANCING

Owner-Occupier Accelerated – Celebrations (LVR
  • We lower your interest rate based on the amount you’ve paid back on your loan
  • Automatic rate adjustment
  • No upfront or ongoing fees

variable More details
A SIMPLE DIGITAL APPLICATION
  • No ongoing fees – None!
  • Unlimited additional repayments
  • Easy online application, find out quickly if you are admitted!
  • Redraw- Access your extra payments when you need them
  • Use the app to get loan insights so you can pay off your home loan faster

Neat Variable Home Loan (Principal and Interest) (LVR
  • No ongoing fees – None!
  • Unlimited additional repayments
  • Easy online application, find out quickly if you are admitted!
  • Redraw- Access your extra payments when you need them
  • Use the app to get loan insights so you can pay off your home loan faster

variable More details
GET A DISCOUNTED GREEN RATE*
  • Low rate home loan with additional benefits, add offset for 0.10%
  • Save thousands and make an environmentally responsible choice on your home loan for less than 12 months
  • Get a NatHERS rating of 7.0 stars or higher for up to 1.79% off your adjustable rate home loan. The terms and conditions apply

Green Home Loan (principal and interest)

  • Low rate home loan with additional benefits, add offset for 0.10%
  • Save thousands and make an environmentally responsible choice on your home loan for less than 12 months
  • Get a NatHERS rating of 7.0 stars or higher for up to 1.79% off your adjustable rate home loan. The terms and conditions apply


Baseline criteria: $400,000 loan amount, variable, fixed, principal and interest (P&I) loans with a minimum 80% loan-to-value (LVR) ratio. However, the Compare Home Loans table allows calculations based on variables selected and entered by the user. All products will list the LVR with the product and tariff clearly posted on the product provider’s website. Once the basic criteria have been changed by the user, the monthly repayments are based on the advertised rates of the selected products and are determined by the user/you entered loan amount, repayment type, loan term and LVR. *The comparative interest rate is based on a $150,000 25-year loan. Warning: This comparison fare is for this example only and may not include all fees and charges. Different terms, fees or other loan amounts can lead to a different comparison rate. Prices valid from April 8, 2022. View disclaimer.


Photo by Merio from Pixabay

The selection of the above products did not take into account the entire market. Rather, a reduced part of the market was considered. Some vendors’ products may not be available in all states. In order to be considered, the product and tariff must be clearly published on the product provider’s website. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Sparmedien Group is assigned to the Firstmac Group. To learn how Savings Media Group manages potential conflicts of interest and how we are paid, please visit the website links at the bottom of this page.

Virginia C. Taylor