A few weeks back, I wrote about the ‘fixed rate mortgage cliff’ and the impact it will have on 800,000+ Australian homeowners this year (and 450,000 people next year).
The calculus behind the ‘cliff’ is simple: ultra-low fixed mortgage interest rates from the COVID-era are now coming to an end, and are being replaced by interest rates that are much higher than we all expected.
This widespread economic phenomenon is one of the contributing factors to Australia’s current housing crisis—a topic that I’ll explore in detail another time.
In this post, I want to zoom out and explore some alarming new research that indicates a more widespread struggle (being experienced by more people) as a result of mortgage interest rate increases.
Pain caused by the RBA’s interest rate hikes
The RBA’s interest rate hikes are creating headaches for many. Recent data from Roy Morgan indicates that 1.57 million (or 30.2%) of Australian mortgage holders may have been in ‘mortgage stress’ during the three months leading up to August 2023.
August’s mortgage stress data set a new record, surpassing the previously set record just the month prior.
Although the current number of Australians potentially under mortgage stress (1,566,000) is historically high, the percentage of 30.2% is still lower than the peak during the Global Financial Crisis (GFC) 15 years ago. This is attributed to the growth of the Australian mortgage market. The highest proportion recorded was 35.6% in mid-2008.
It could get worse
According to Roy Morgan’s projections, if the RBA further increased interest rates by just 0.25%, the number of mortgage holders ‘At Risk’ could climb even more.
Roy Morgan defines ‘At Risk’ mortgage holders as those spending a significant portion of their household income on mortgage repayments, considering their income and expenses.
On the other hand, those classified as ‘Extremely At Risk’ are those who spend a considerable portion of their household income just on ‘interest only’.
Those deemed ‘Extremely At Risk’ have swelled to 1,066,000, or 21.0%, significantly higher than the 15-year average of 15.3%.
Unemployment is a key variable
One of the most significant determinants of mortgage stress is unemployment.
Recent findings have shown that unemployment rates rose in August by 1.9% to reach 11%. More concerning is the fact that when underemployment is included, over 20.1% of Australian workers, approximately 3,083,000 individuals, are either unemployed or underemployed.
While interest rates are a concern, the primary determinant of an individual or household’s ability to manage their mortgage is not the rates but the security of their main source of income.
Here’s why refinancing is a smart choice
Even if you think you already have a low interest rate, it might be a smart move to discuss a refinance with a Trilogy Funding broker.
You’d be surprised at the interest rate we may be able to access, via our relationships with lenders and access to senior credit officials.
Here are other ways refinancing can relieve mortgage stress:
- Optimising Loan Structures. Refinancing also allows you to tweak the structure or type of your loan(s).
- Debt Consolidation: Bringing multiple debts under one umbrella can mean paying less in interest, reducing mortgage stress, and eliminating “bad” debt sooner.
- Extended Loan Duration: Another perk of refinancing is the ability to prolong a loan’s term. This can lead to smaller monthly payments.
- Tailored Loan Features: Refinancing provides an opportunity for borrowers to evaluate and adjust loan features to fit their current situation. This includes the addition of offset accounts allowing for extra repayments without fines, or adding a redraw facility.
Can We Help With Your Refinance?
Rising interest rates are creating unique challenges for Australian homeowners.
If you’re looking for an expert team to help with your refinance, or implement other strategies that may help you through this situation, request a Free 30-Minute Finance Strategy Session during which you will…
- Get a better understanding of the lending options available to you, so you can refinance with confidence
- Discover no-cost ways to save money on interest, fees, and charges
- Get an up-to-date picture of the lending landscape including rates, conditions, and how to structure loans
- Learn about our process to find you a better loan that could save you thousands.
This no-obligation free session will be held with one of our experienced mortgage brokers.
Please be assured this will not be a thinly disguised sales presentation. On the contrary, you’ll receive our best strategic advice, specific to your situation, so you too can accumulate multiple properties without sacrificing your current lifestyle and accelerate your progress towards wealth.
Schedule Your FREE 30-Minute Finance Strategy Session Today
Please note, the numbers and assumptions listed in this article are for educational purposes only. Individuals should seek specific advice pertaining to their unique situation and the real estate market before making any decisions.
Trilogy Funding Two is a corporate credit representative (Representative Number 506131) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237)
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).