Many households in these suburbs are already among Australia's most financially stressed
Outer suburban electorates of Australia’s major cities are facing a “huge cliff” in the next few years as their fixed-rate mortgages expire and they are slammed with higher interest rates, analysts warn. These outer suburbs are already home to many of the country’s most financially stressed households.
New dwelling costs rose 13.7% in the March quarter, according to new inflation data from the Australian Bureau of Statistics. That’s the biggest quarterly rise since the introduction of the GST in September of 2000. Rents also resumed rising in Melbourne and Sydney and became more expensive in other capitals, according to a report by The Guardian.
Research by the University of New South Wales last year found that of the 12 electorates where households were already under financial stress, none were in outer metropolitan regions.
“It’s not, strictly speaking, mortgage stress,” Professor Hal Pawson of UNSW told The Guardian. “It’s people who are in financial stress who also have a mortgage.”
Those suburbs – mostly held by Labor – often have higher ratios of first-home buyers, many of whom took advantage of government stimulus programs during the COVID-19 pandemic. Many of them bought their homes near the top of the market, and will not have earned a pay rise since buying, Pawson said. Households in the UNSW survey were deemed to be stressed if their residual funds after normal expenditure, including for housing, amounted to less than 5% of income.
Meanwhile, markets are already lifting rates in anticipation of an RBA hike, and soaring inflation means future lending rates will probably be higher, The Guardian reported. National Australia Bank, for example, has hiked fixed rates on four-year loans by almost three percentage points in the past year.
“There’s going to potentially be a huge cliff in two or three years’ time when their fixed-rate loan runs out because they’ll have to refinance,” Pawson told The Guardian.
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For those with an average mortgage of $600,000, a three-percentage-point hike to borrowing costs could cause repayments to balloon by $1,500 per month or more.
“That’s going to be a lot for any household to swallow,” Pawson said.
RateCity research director Sally Tindall pointed out that other costs, such as food and fuel expenses, would be rising as well, compounding the issue.
“There are going to be some households that really have to take a long, hard look at their budgets, and potentially make some hefty cuts in numerous places just to keep their heads above water and their mortgage repayments up,” Tindall told The Guardian. “We’re looking down the barrel at not just one rate hike in isolation. There’s going to be multiple hikes.”
Anyone who recently had a change in circumstances, such as the birth of a child, a change of job or a business impacted by COVID-19, may have difficulty making higher repayments, Tindall said.
In addition, “anyone who bought recently and potentially overstretched themselves to get into an overheated property market, they will feel the heat of these rate hikes, that’s for certain,” she said.
