As the RBA raises the cash rate again, worrying maps have revealed mortgage-stressed suburbs that will be crushed by the rising shock.
The number of Australians suffering from ‘mortgage stress’ is set to soar following today’s interest rate hike, with home loan repayments set to rise again for the second time in as many months.
The Reserve Bank announced this afternoon that the spot rate would rise from 0.35% to 0.85%, an increase of 50 basis points larger than expected.
Particularly affected will be those who entered the market between November 2020 and May this year, during which time the Reserve Bank of Australia (RBA) held rate at a record low of 0.1%.
“Mortgage stress is defined as having less than 5% of ordinary income left over after covering your repayments and ordinary day-to-day expenses,” Kate Colvin, spokeswoman for the advocacy group, told news.com.au housing Everybody’s Home.
“The NSW region and outside of western Sydney will be particularly hard hit by these increases – particularly the low-income communities that stretch across the hinterland and along the NSW coast.”
According to Everybody’s Home’s interactive financial stress map, New South Wales is the most indebted state, with 70% of homes in western Sydney, Hume, Macarthur and Werriwa electorates already facing to financial stress.
Well over 50% of homeowners further inland in the regional seats of Calare, New England and Riverina are also feeling the sting of rising mortgage repayments.
However, NSW is just the tip of the iceberg, with Digital Finance Analytics director Martin North explaining The telegraph of the day that if rates were to rise above 2% (as reported by the RBA), almost 50% of homeowners nationwide would fall into mortgage stress.
“We have over four million homes out of nearly 10 million that are already close to the edge – this is an unprecedented situation,” Mr North said.
“If we assume the RBA adds 2%, or thereabouts, another 400,000 to 500,000 would likely fall into that stress category.”
Mr North said that according to DFA data, Sydney’s south-west suburb of Campbelltown was under the greatest pressure nationally, with almost five in six households under stress.
Tapping in Perth came second in numbers, with Berwick in Melbourne and Toowoomba in Queensland also topping the list.
Affluent suburbs are also feeling the sting
Higher-income areas on the east coast are also expected to feel the bite of the RBA today, with the affluent seats of Wentworth in Sydney’s east and gentrifying Melbourne also facing pre-existing levels of mortgage stress above 40%.
“Stress is also surprisingly high in these affluent suburbs, reflecting the fact that to buy property in Sydney or Melbourne now people have to stretch a lot,” Ms Colvin said.
“This trend makes people very vulnerable to these interest rate hikes and means these developments are going to cause a lot of pain in many communities.”
Ms Colvin said that in general, owners of variable rate mortgages should prepare for the impact.
“People who have brought in more recently have paid a lower interest rate for the term of their mortgage, so this will be a big step forward,” she said.
“These numbers show that people will have to cut spending because their budgets will be really stretched – and that will ripple through the economy.”
Ms Colvin warned that these economic impacts would squeeze budgets more than just less takeaways and overseas holidays.
“People end up delaying expenses that aren’t immediate but are still critically important — for example, dental visits, paying for a car service or car insurance — keeping those expenses remotely can then create more costs later,” she said.
“For wealthy families, this could mean fewer haircuts or nights out – but even that impacts flows with less revenue for companies to employ workers.”
Ms Colvin noted that the community’s vulnerability to interest rates was a preventable problem that had been dismissed for decades, but praised the incumbent government for its national housing strategy.
“The reason we have unstable housing markets is because we don’t have good policy, which is why we need the government to come up with a national housing strategy – which they have pledged to do. “, she said.
“Many political reforms are needed in Australia to bring this situation under control.
“Providing more housing security is certainly possible for people, but it will take time and effort.