Australian mortgage holders defying predictions and managing debt

The number of home loans in arrears are less than one percent of all borrowers, defying predictions of dire outcomes from a ‘mortgage cliff’ and the impact of high interest rates and cost of living pressures.

Most borrowers are making their home loan repayments on time, and although the number of loans in arrears has increased since late 2022, they represent only a tiny portion of the market, according to the Reserve Bank (RBA). Less than 1 percent of all housing loans are 90 or more days in arrears, which is lower than the pre-pandemic peak.

In its latest Financial Stability Review released this month, the RBA said households remain under pressure from high inflation and interest rates, with consumer sentiment very weak. More Australians than usual are seeking support from community organisations, and lenders have a small but rising number of borrowers on temporary hardship arrangements.

“Based on their latest assessment of the economic outlook, banks expect arrears rates to increase a bit further from here but remain low relative to history,” the RBA said.

The RBA notes that since the start of 2022, real disposable income has fallen by about 7 percent to be near its pre-pandemic level in per capita terms. Most mortgagors have seen 30-60 percent increases in their minimum home loan repayments since rates began rising in May 2022. However, only about 5 percent of variable-rate owner-occupier borrowers today have expenses exceeding incomes, giving them a cash flow shortfall.

Households are coping well due to a strong labour market, which is allowing them to increase their hours or get a second job if necessary. They are also drawing on large savings buffers, partly created by pandemic stimulus and lower spending during lockdowns, and have reduced their discretionary spending as necessary.

The loan arrears rate is highest among highly leveraged borrowers, however it is still very small at less than 2 percent. The share of mortgagors estimated to have a cash flow shortfall combined with low savings has risen over the past two years but still represents less than 2 percent of variable-rate owner-occupier borrowers. Unusually, the arrears rate among recent first home buyers is lower than average, possibly reflecting the Bank of Mum and Dad enabling young buyers to purchase properties with less debt.

The arrears rate among borrowers who rolled over from low fixed rates to variable rates in one hit – an event labelled ‘the mortgage cliff’ which was expected to hit hardest late last year – are managing their repayments just as well as other borrowers. “This resilience partly reflects that these borrowers were able to build up savings buffers over a longer period of unusually low interest rates,” the RBA said.

High income earners are depleting their pandemic savings at the fastest rate because they tend to be servicing greater debt. But they still have the highest savings and are likely using some of it to support continued discretionary spending. Conversely, the lowest-income mortgaged households grew their savings in 2023.

The RBA says nearly all borrowers should be able to service their loans even if inflation is more persistent than expected and interest rates remain higher for longer. While the RBA expects a rise in unemployment, it noted that historically mortgagors are less likely to lose their jobs. Many mortgagor households also have multiple incomes, and about half of all borrowers have enough savings to service their debts and essential expenses for at least six months. Lenders can also offer temporary support to borrowers who lose their jobs.

The RBA said most borrowers also have strong equity positions, which protects them from default and limits risk for lenders. Rising property prices last year gave homeowners more equity and banks have been issuing fewer high loan-to-value (LVR) loans since 2021. These types of loans are now at near-historical low levels.

“The share of loans (by number or balances) estimated to be in negative equity at current housing prices remains very low,” the RBA said. “While usually a last resort and very disruptive for owner-occupier borrowers, this would allow almost all borrowers to sell their properties and repay their loans in full before defaulting.”

Hypothetically, in a severe economic downturn during which housing values fell 30 percent, the RBA estimates that the share of loans falling into negative equity would increase to about 11 percent. The RBA said significant losses for lenders would only materialise if more borrowers became unable to service their loans.

One of Burleigh Heads’ most architecturally significant penthouses has hit the market for the first time since its completion five years ago.

The listing provides the first real look inside the two-level penthouse crowning Norfolk, Forme’s award-winning Goodwin Terrace development which was completed in 2021.

The penthouse sold off the plan for $5.35 million around 18 months before construction was completed and has remained tightly held ever since, meaning its resale offers the first insight inside one of Burleigh’s most architecturally impressive apartment buildings.

The four-bedroom residence spans approximately 461 sqm, comprising 276 sqm of internal living and a further 185 sqm of outdoor space across its two levels.

Its position on Goodwin Terrace gives the penthouse one of the Gold Coast’s comparatively rare true north-to-water aspects, with views stretching from Burleigh Headland along the coastline towards the towers of Surfers Paradise. Floor-to-ceiling glazing has been used extensively throughout the residence, framing the ocean outlook from almost every principal living space.

Forme, led by Managing Director David Calvisi, acquired the prime 1,012 sqm site, formerly home to The Fish House restaurant, before developing Norfolk as the first new multi-residential project delivered on Goodwin Terrace in around three decades.

The strength of the location was clear. The more unusual proposition was the building itself.

Forme appointed Koichi Takada Architects to design the 10-level development, marking the practice’s first Gold Coast building. Rather than treating Norfolk’s beachfront setting as a backdrop, Takada used the Norfolk Island pines along the foreshore as the basis for the architecture.

Curved balcony slabs and horizontal battens create the building’s distinctive layered exterior. Sliding timber screens can be repositioned for privacy, shade and protection from the coastal conditions, continuously changing the appearance of the façade.

Takada has compared the concept to the structure of a pinecone, whose overlapping layers open and close according to environmental conditions. In an earlier account of the project, the architect said the objective was to celebrate the site and create a stronger connection between the residences and the elements outside.

The response helped turn Norfolk into an architectural marker for Burleigh’s transformation.

Norfolk comprises 12 half-floor apartments, two dual-level penthouses and one two-level beach house. MIM Design created the interiors, Hutchinson Builders undertook construction and Plus Architecture supplied documentation services for the builder.

Inside Residence 901, MIM Design’s restrained palette brings together timber, natural stone and tailored joinery without competing with the outlook. Travertine surfaces have subsequently received paint-protection film, while the home is being offered with a custom furniture package.

A private lift opens directly into the main living level. Living, dining and media spaces are arranged along the view, accompanied by a concealed bar and a broad north-eastern terrace.

The kitchen has an oversized stone island, European appliances and bespoke cabinetry, supported by a butler’s pantry and separate scullery. An integrated RTI system controls lighting, climate, fans, security, entertainment and audio using in-home touchscreens or a smartphone application.

The principal suite occupies a private wing with ocean views, a dressing room and ensuite. Two additional bedrooms have their own ensuites, while a fourth bedroom can operate as an executive study. A concealed Murphy bed allows that room to accommodate guests when required.

The rooftop is what moves the residence beyond even a generously proportioned beachfront apartment.

Reserved exclusively for the penthouse, it contains a heated lap pool, landscaped gardens, several entertaining areas and an alfresco kitchen with a built-in barbecue. An integrated outdoor cinema allows the rooftop to function as an open-air screening room above the Pacific.

Four side-by-side secure car spaces, dedicated electric-vehicle charging and private storage address practical constraints often encountered by prestige-apartment buyers. The parking allocation is particularly relevant for owners moving from a large house or maintaining a car collection.

Norfolk’s wider amenities include a beach-club-style residents’ area, swimming pool, gymnasium and sauna. Burleigh Beach is directly opposite, while James Street, Burleigh Head National Park and restaurants including Rick Shores and The Tropic are within walking distance.

The building’s reputation has also moved well beyond its beachfront address. Norfolk received both jury and popular-choice honours in the mid-rise multi-unit housing category at the 2022 Architizer A+Awards. It won a Queensland Australian Institute of Architects award for multiple housing and was named the 2022 Medium-Density Residential Development of the Year by The Urban Developer. Further recognition came from the Master Builders awards and Architecture MasterPrize.

Calvisi later said the aim with Norfolk was to produce something the Gold Coast had not previously seen.

The penthouse is being marketed through expressions of interest by Dean Pegoraro of Whitefox Gold Coast.

Australian mortgage holders defying predictions and managing debt

However, there is one group spending their savings at a faster rate than the rest