While arrears have increased, most mortgage borrowers will ride out the storm, expert predicts
Although there has been an increase in mortgage arrears as interest rates have skyrocketed, borrowers are expected to fare better than they did during the Global Financial Crisis, according to a PropTrack economist.
The share of mortgages three or more months past due inched up to 0.41% through January, while repayments 31 to 60 days late have risen to 0.33%, according to data from the Australian Banking Association.
The Reserve Bank has tipped increasing late payments as a sign that households are entering financial stress in the wake of 10 consecutive rate hikes, The Australian reported.
Despite the increase in arrears, the mortgage market is still tracking well below the levels recorded during the GFC, when 1.69% of loans were past due.
Cameron Kusher, director of economic research at PropTrack, told The Australian that cheap credit allowed buyers to overextend themselves during the pandemic housing boom. However, that didn’t necessarily mean a tsunami of forced sales was on the way, he said.
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“We came off a period where interest rates were the lowest they’ve ever been,” Kusher said. “We came off a period where property prices were rising very quickly, so people were probably borrowing more [than] they had previously or that they would have previously been comfortable with doing. Certainly I don’t think we’ll get back to anything like the GFC.”
Borrowers will prioritise mortgage repayments
The 10 consecutive rate hikes since May 2022 have hit borrowers in the hip pocket. About 880,000 mortgages are due to move from low fixed rates to variable rates this year, hitting those borrowers with a 30-50% spike in repayments. The Australian reported.
However, leading economists predict that most borrowers will continue to service their mortgages despite spiking repayment costs.
“You would see late payments rise in credit cards, auto loans, things like that, earlier and by a larger magnitude than you would see with mortgages,” Kusher told The Australian.
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