This as half of borrowers are trapped in mortgage prison
A large proportion of Australian borrowers are trapped in mortgage prison, with nearly 80% worried about their ability to keep up with repayments if interest rates continue to rise, a mortgage broker said.
Louisa Sanghera (pictured above), Mum CFOs and Zippy Financial director and principal broker, said many borrowers had started to panic since the June interest rate hike and even considered fixing their mortgages at rates of nearly 6% or higher.
“The June cash rate increase was the straw that broke the confidence, and financial security levels of many borrowers,” Sanghera said.
“Some borrowers who may have been overzealous with their lending during the pandemic are now very worried whether they will be able to continue to service their mortgages if rates continue to rise, with some making poor financial choices because of their increasing financial stress.”
Anecdotal insights and feedback from Mums CFOs, a platform for mums who are CFOs of their households, revealed just how serious the current financial situation of Aussie households in the wake of the fastest interest rate hike over the past year in a generation:
- Around 80% indicated they were concerned about their ability to pay their mortgage if interest rates kept on increasing, with 43.4% saying they were very concerned.
- About 24% indicated their total mortgage repayments had risen by more than half over the past year.
- About 36% said mortgage repayments ate more than 51% of their total household incomes, while a further 22.9% were spending around 41% to 50%.
- About 53% indicated they were shackled to their current lenders.
Sanghera said it was the borrowers who worked with brokers who stress-tested their lending applications on their actual expenses over recent years who were generally in better financial positions.
“Unfortunately, when property markets are booming and there is an element of FOMO amongst buyers, sometimes this can lead to people purposefully underreporting their household expenses so they can qualify for higher loans to purchase a new home,” she said.
“The fallout of this mindset is that people may wind up borrowing more funds than they can realistically service when interest rates return to more normal historical levels.
“Of course, the rapid increase in mortgage repayments has left many of us a bit breathless, with a rising number of borrowers clearly now in financial stress because of it.”
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