Monthly repayments for a home owner on an average income of $94,000,who borrowed to their maximum capacity of $524,000 in May 2021,have already increased by $1124,Canstar modelling shows.
That outstrips the $775 monthly increase they were stress tested for,assuming rates climbed 2.5 percentage points,leaving the home owner struggling to find an extra $350 more per month.
A home owner who borrowed $1 million,has already had repayments increase by more than $2000,surpassing their buffer rate by $665 per month.
Even a home owner who purchased the following year,when the serviceability buffer had lifted to 3 percentage points,is paying $235 more per month than what they were stress tested at.
These households would have to find hundreds more to cover repayments after the latest rate hike.
It comes as new Roy Morgan research shows an estimated 1.38 million borrowers,or 27.8 per cent,were at risk of mortgage stress in the three months to April,the highest number since the global financial crisis.
‘You wouldn’t be approved for that loan today.’
Steve Mickenbecker,Canstar group executive
Commonwealth Bank’s head of Australian economics Gareth Aird said there would be little left for some home owners to cut back on after a year of rate hikes,and warned some households would be at their tipping point.
“You can’t cut back on everything ... you’ve got to live. The serviceability[buffer] was just too low given how much the RBA ended up hiking[rates],” Aird said.
“For the more recent entrants,the more you push up rates,the more people ... will be forced to sell. Some people will look for additional work,some people will look at what else to cut back on,people will look to rent an additional room.”
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Westpac senior economist Matthew Hassan said the impact of the rate rises was beginning to snowball.
“Some of the pressure ... across the mortgage belt is starting to appear,” he said. “The risks out there are starting to accelerate ... because the roll-off of[lower] fixed rates accelerates in the second quarter,” Hassan said.
“Those who borrowed[close to the market peak] are near their limits and are struggling with the rate cycle. It has outstripped their buffer assessment,so that is most definitely where the pain is the hardest.”
Canstar group executive Steve Mickenbecker said more home owners would be under housing stress with every rate rise.
“A lot of people did borrow up to their maximum to stretch themselves to get in,” Mickenbecker said.
‘It’s a double whammy of the interest rate increase and cost of living increase that has made it super difficult for everybody.’
Mortgage broker Rebecca Jarrett-Dalton
“Now you add an extra $1000 a month to your repayments on a $500,000 loan and ... you’re way over the normal serviceability for a loan. You wouldn’t be approved for that loan today,but you’re into mortgage stress as well,” he said.
Mickenbecker said mortgage stress would hit recent borrowers and first home buyers hardest as they had very little chance of building up savings or making extra repayments before rate hikes began.
“It is very concerning,it hurts people so unevenly.”
Two Red Shoes founder and mortgage broker Rebecca Jarrett-Dalton said many borrowers were feeling the heat as variable rates exceeded what they had been stress tested at.
“At the beginning of 2020 the buffer was only 2.5 per cent. We’re nearly a whole per cent over their buffer. Everybody’s feeling it,but you’re not necessarily at your limit. But those who had to stretch themselves would be feeling it,” Jarret-Dalton said.
“It’s a double whammy of the interest rate increase and cost of living increase that has made it super difficult for everybody.”