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‘Disturbing signs of mortgage stress’ as rates rise

by James Mitchell11 minute read
‘Disturbing signs of mortgage stress’ as rates rise

As banks begin lifting mortgage rates in the lead up to Christmas, analysis has revealed that Australian home owners are burdened by unhealthy levels of debt.

A new analysis of client data by personal financial management software company Moneysoft shows “disturbing signs of mortgage stress” among Australian home owners.

The Moneysoft analysis found more than 25 per cent of 1933 client home loans were currently “unhealthy” because the size of the loan had increased by at least 5 per cent over the life of the loan. Just over one-quarter were “neutral” thanks to their steady loan balances, leaving slightly more than half of all loans classed as “healthy” (the loan size had decreased by at least 5 per cent).

The analysis found that these signs of mortgage stress were concentrated among Australians with larger loans, who are potentially more vulnerable to interest rate rises.


“While the official RBA data suggests that borrowers have an average two-and-a-half-year repayment buffer in home loan offset and redraw accounts, this clearly masks a subset of borrowers who have used low interest rates to aggressively leverage up,” Moneysoft managing director and founder Peter Malekas said.

“Many of these borrowers should act now to strengthen their financial position by carefully assessing their spending patterns and implementing a budget. Good financial advice combined with automated financial tracking software tools can make this a simple and rewarding process.”

Australians have accrued massive personal debt levels as interest rates have fallen in recent years. Total household debt is now equivalent to a record high of 185 per cent of annual household disposable income according to the RBA, up from around 70 per cent in the early 1990s.

While official interest rates remain at historic lows, a number of major banks have recently increased their fixed home loan and property investment loan rates.

Smaller lenders, such as ING DIRECT, Suncorp Bank and Bendigo Bank, have also raised their standard variable rates.

Lenders have cited increased funding costs as the primary reasons for their recent mortgage repricing.

Suncorp Bank, which lifted its variable rates for new and existing property investors by 15 basis points this week, noted that funding markets have changed significantly since the US election.

“Financial markets have witnessed some significant moves since the US election, particularly within global bond, currency and commodity markets,” Suncorp’s acting CEO Steve Kluss said.

“Bond rates have drifted higher since their record lows from the middle of the year and funding markets in Australia have also become more expensive due to a number of factors, including regulatory reforms.

“Bank funding is driven more by changes in bond rates than cash rates, which has put pressure on costs for variable home loans.

[Related: Borrowers 'extremely concerned' about rate hikes]

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James Mitchell


James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.

He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.

He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.

James holds a BA (Hons) in English Literature and an MA in Journalism.