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Mortgage stress will double if home loans increase by 2 percentage points

The RBA’s latest Financial Stability Review found that a 200 basis point increase in interest rates could cause house prices to fall by 15%.

The Reserve Bank paper found that 90% of those with fixed-rate home loans expiring within the next two years could see their repayments increase by up to 20% if interest rates rise by 200 basis points. .

Commonwealth Bank’s half-year results indicate that $89 billion in fixed home loans are due to expire in 2023.

The RBA paper suggests that just over 40% of variable rate borrowers have made enough monthly repayments in the past year to cover a difference of 200 basis points.

A quarter of these borrowers would see their repayments increase by more than 30%.

Those with mortgage stress – more than 30% of income going to the mortgage – would double to 10% to 20%.

Some fixed-rate home loans have already risen more than 200 basis points over the past year.


That said, Australians are on average still well ahead of their mortgage payments.

During the pandemic, the average (median) homeowner on a variable rate loan was 21 months ahead of mortgage payments in February.

A 200 basis point rise in mortgage rates could cause this rate to drop to 19 months.

Before the pandemic, the average buffer was 10 months.

Rising interest rates

RBA data shows that many fixed-term home loan rates are higher than they were before the pandemic.

At the end of February 2022, the average fixed rate for owner occupiers beyond three years was 3.27% per year – the last time it was higher was at the end of September 2019 when it was 3.29 % per year

Fixed home loans over three years for investors also averaged 3.52% per annum – they were last at this level at the end of January 2020 (3.57% per annum)

They are expected to trend higher when March and April data are released amid a wave of fixed rate hikes in recent weeks.

Fixed tenors under three years still have some catching up to do, while variable loans generally continue to slide, as shown in the chart below.

These data are for New loans funded during the month, which gives a more accurate view of the direction the market is taking than everything outstanding loans.

Skyrocketing average home loan size

Although there was a slight pullback in February, ABS data shows that the average size of home loans for homeowners and investors has risen sharply since the start of the pandemic.

In February 2020, the average homeowner loan size was $480,000, while for investors it was $481,000.

Fast forward to two years later and that’s $596,000 and $602,000 respectively, as seen in the chart below.

Average home prices are also rising sharply

ABS data shows that at the end of December 2021, the average price of residential homes across Australia reached $920,100.

It has soared to over $1.2 million across New South Wales.

Note that “average” prices can be topped by a few multi-million homes.

Domain data for the December quarter shows the average home price in capital cities also topped $1 million.

However, data from CoreLogic showed for the first time in 17 months that Sydney saw a drop in house values.

Higher mortgage rates and high house prices make Homer something of something.

A decade under the influence: No increase in RBA rates since 2010

At Tuesday’s monetary policy meeting, the Reserve Bank board decided to leave the cash rate unchanged at 0.10% or 10 basis points.

It has been at this record high since November 2020.

However, the removal of the word “patient” from his statement signaled to the market that he may soon raise the cash rate.

Australia’s four major banks have now forecast a rate hike in June.

ANZ economists forecast the cash rate to reach 2.00% by the end of 2023, meaning they expect eight cash rate hikes between June and then – a rise of 15 basis points followed by seven increases of 25 basis points.

The last time the Reserve Bank raised the key rate was in November 2010, raising it by 25 basis points to 4.75%.

Since then, the central bank has made 18 cuts, including two unprecedented cuts in March 2020 alone.

For the RBA to raise the cash rate in June, Westpac chief economist Bill Evans said a few things had to happen first.

He said that will depend on new inflation data released on April 27, wage data on May 18 and other labor force data to be released during those months.

An upcoming federal election in mid to late May also throws a spanner in the works.

“While the May election posed some complications for monetary policy, it is clear from this change in rhetoric that the Board is prepared to accept that a specific discussion of an immediate rate hike after the election on the 14th or May 21 could be considered, underscoring the independence of the Reserve Bank,” Mr. Evans said.

“We have been surprised by this very significant turnaround by the board since the March meeting.”


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Lender

Rate type Gap Redraw Ongoing charges The initial costs LVR Lump sum reimbursement Additional refunds Pre-approval

Variable More details
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Variable More details
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Low Rate Home Loan – Premium (Principal & Interest) (Owner Occupant) (LVR
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Variable More details
ZERO APPLICATION FEESCOMPENSATION WITHOUT COST

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Variable More details
AN EASY DIGITAL APPLICATION
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Careful variable real estate loan (capital and interest) (LVR
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Variable More details
BENEFIT FROM A REDUCED GREEN RATE*
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Green real estate loan (capital and interest)

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Basic criteria: a loan amount of $400,000, variable, fixed, principal and interest (P&I) real estate loans with an LVR (loan-to-value) ratio of at least 80%. However, the “Compare mortgages” table allows calculations to be made on the variables selected and entered by the user. All products will list the LVR with the product and price list which is clearly published on the product supplier’s website. Monthly repayments, once the basic criteria are modified by the user, will be based on the advertised prices of the selected products and determined by the loan amount, repayment type, loan term and LVR as entered by the user. user/you. *The comparison rate is based on a loan of $150,000 over 25 years. Please note: this comparison rate is only true for this example and may not include all fees and charges. Different terms, fees or other loan amounts may result in a different comparison rate. Rates correct as of April 8, 2022. See disclaimer.


Photo by Merio on Pixabay

The whole market has not been taken into account in the selection of the above products. Instead, a reduced portion of the market was considered. Products from some vendors may not be available in all states. To be considered, the product and price must be clearly published on the product supplier’s website. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au and Performance Drive are part of the Savings Media group. In the interest of full disclosure, Savings Media Group is associated with Firstmac Group. To learn how Savings Media Group handles potential conflicts of interest, as well as how we are paid, please visit the website links at the bottom of this page.