Mortgage defaults low risk, study reveals

The research found only when all other options were “exhausted”, such as credit cards, personal loans and buy now, pay-later (BNPL), did borrowers begin to default on their home loan payments.

Researchers established a “pecking order of defaults” and marked primary mortgage as eighth on the list, while investment home loans were fifth — placing them at more risk of default.

Products with some level of utility, such as lived-in houses, cars, and mobile phones, rather than credit that has already been spent, appear to be most valued by consumers and were the last to see defaults on.

As the cost of living pressures and rising interest rates pinch Australians, analysts expect mortgage arrears to increase over the year.

Yellow Brick Road broker Suzy Macdonald said the lower risk of home loan defaults comes as no surprise given the importance of having a roof over your head.

But she said the effects of rate hikes was yet to be felt with her clients.

“I am not yet hearing that customers are concerned over mortgage default at this time … [but] customers are angry at the steep rise in rates and the impact on their cash flow particularly at a time where the cost of living,” Ms Macdonald said.

“The actual interest rate and repayment amount have become key product objectives over other considerations such as having an offset account or fixed rate products.”

Providing credit advice and servicing clients debts has become paramount at this uncertain time.

She said customers are seeking a review of their current home loan interest rate to ensure they are best placed for the current and future rate rises.

“It is a very busy time for customers seeking home loan interest rate reviews.

“In some cases, this conversation may result in a refinance … or in other cases understanding what a rise in interest rates looks like for the customers repayments and feeling assured that they are on a competitive rate and can manage forecasted interest rate rises in their budget.”

In addition, the research found consumers were conscious about damaging the relationship with their bank.

Senior lecturer in finance at the University of Sydney Business School, Dr Andrew Grant, explained consumers thought they might get better hardship benefits from working with the bank as opposed to a third-party lender.

Dr Grant said consumers felt if they kept their promise to the bank in the past, the bank was more likely to work with them to find a payment solution.

The research found that people holding both buy now, pay later and credit card products tended to spend more on their credit card than consumers holding only a credit card, due to a “perception of greater spending power”.

Dr Grant said lenders should pay “careful attention” to the products a consumer holds from other lenders.

[Related: Deliquency rate to rise over 2022: Moody's]