One of Australia’s largest mortgage brokerages has found that borrowers are beginning to feel the burden of out-of-cycle rate hikes.
According to iSelect, which bagged 13th place in The Adviser’s Top 25 Brokerages ranking this year and boasts a loan book of $937 million, a third of Australian households with a mortgage have had their interest rate increase during the last year.
The Galaxy Research study commissioned by iSelect to assess the attitudes and behaviours of Australian mortgage holders found that one in four (25 per cent) Australian mortgage holders said that they are currently struggling to meet their monthly home loan repayments.
Laura Crowden, spokesperson for iSelect Home Loans, pointed out that that many home owners have been stung by a rate hike over the past year despite the official RBA rate remaining stagnant.
“A third of home owners have had their rate increase during the past 12 months, and if the RBA was to increase the official cash rate, no doubt most lenders would quickly follow suit. This would mean [that] more and more Aussie homes will have to find ways to cut back in order to afford their increased home loan repayments.”
Ms Crowden said that it was concerning that a quarter of households are already struggling, given that the official cash rate is predicted to begin rising at some point over the coming year.
“Despite having access to low interest rates, many families [have been forced by record house prices] to significantly extend themselves, with almost 40 per cent of households making their payments without having a surplus left over,” the spokesperson said.
“As such, it is not surprising that many Aussie home owners are already struggling to make their monthly repayments even while interest rates are low.”
The Galaxy Research found that if their interest rate was to increase by 1 per cent, more than 780,000 mortgage holders (26 per cent) would struggle to some extent to make their repayments. This includes 632,000 households (21 per cent) who would have to cut back in other areas to meet their repayments and 150,000 households (5 per cent) who would be forced to go into debt, borrow money or sell their home.
Ms Crowden said: “We know from speaking to our customers that many Aussies are really feeling the pinch of rising cost-of-living pressures on their stretched household budget, especially as energy bills continue to skyrocket across much of the country.”
She highlighted that, with interest rates at record lows, it’s concerning that the research found 54 per cent of mortgage holders are paying an interest rate of 4 per cent or over.
“Even more concerning is that 13 per cent of mortgage holders (more than 400,000 households) are paying over 5 per cent.”
[Related: NSW mortgage rates differ by 1.91%]
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.
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