Australian mortgage holders defying predictions and managing debt
Kanebridge News
Share Button

Australian mortgage holders defying predictions and managing debt

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

By Bronwyn Allen
Tue, Mar 26, 2024 10:09amGrey Clock 3 min

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.



MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Money
The Top 10 highest paid CEOs of the ASX 200 revealed
By Bronwyn Allen 23/07/2024
Money
Is ‘Rizz’ the Secret to Getting Ahead at Work?
By RACHEL FEINTZEIG 23/07/2024
Money
Where Do Economists Think We’re Headed? These Are Their Predictions
By SAM GOLDFARB 23/07/2024
Winning neighbourhoods where home values rose most in FY24

We reveal the No. 1 areas for price growth in each capital city

By Bronwyn Allen
Thu, Jul 18, 2024 3 min

Home values across Australia rose by a median 8 percent in FY24, delivering the equivalent of $59,000 in new capital growth to the two-thirds of the population that owns a home, according to CoreLogic data. Investors received total returns of 12.2 percent over the year, including capital gains and gross rental income.

Very tight supply and demand in most capital cities except Melbourne and Hobart was a significant driver of the capital growth, with the smaller and more affordable capital cities of Perth, Brisbane and Adelaide experiencing the most price appreciation over the year. A lack of properties for sale trumped the usual dampening effect of higher interest rates.

As usual, some areas outperformed their city’s median growth benchmark. Here are the top SA3 areas for capital growth in each capital city of Australia in FY24. SA3 areas are large suburbs, or districts incorporating clusters of suburbs, with more than 20,000 residents.

 

Sydney

Home values across Sydney rose by a median 6.3 percent in FY24. The No. 1 area for growth was Mount Druitt. Its median value rose by 13.96 percent to $859,939. Mount Druitt is located 33km west of the CBD. It incorporates the suburbs of Mount Druitt, Ropes Crossing, Whalan and Minchinbury. The Mount Druitt community is very multicultural with almost one in two residents born overseas. It is home to many young families, with the median age of residents being 33 compared to the NSW median of 39.

 

Melbourne

Home values across Melbourne rose by a median 1.3 percent in FY24. The top area for capital growth was Moreland-North with 4.71 percent growth. This took the district’s median home value to $746,488. Moreland-North includes the suburbs of Hadfield, Pascoe Vale and Glenroy. It’s a multicultural community with a particularly large contingent of residents with Italian ancestry. One or both parents of 66 percent of residents were born overseas, according to the 2021 Census.

 

Brisbane

Home values across Brisbane rose by a median 15.8 percent in FY24. The No. 1 area for growth was Springwood-Kingston in Logan City. Its median value swelled by 25.55 percent to $710,569. Springwood-Kingston is approximately 22km south of Brisbane CBD. It incorporates the suburbs of Springwood, Kingston, Rochedale South and Slacks Creek. It is a multicultural community with one or both parents of 55 percent of the residents born overseas, according to the 2021 Census. More than 15 percent of residents have Irish or Scottish ancestry.

 

Adelaide

Home values across Adelaide rose by a median 15.4 percent in FY24. The best area for capital growth was Playford in Playford City. Its median value soared by 19.94 percent to $530,991. Playford is approximately 40km north of Adelaide. It incorporates the suburbs of Elizabeth Downs, Elizabeth Grove, Angle Vale and Virginia. It is home to many young people under the age of 40. The median age of residents is 33 compared to the state median of 41.

 

Perth 

Home values across Perth rose by a median 23.6 percent in FY24. The No. 1 area for growth was Kwinana in Kwinana City. Its median value skyrocketed by 33.19 percent to $618,925. Kwinana is approximately 37km south of Perth CBD. It includes the suburbs of Leda, Medina, Casuarina and Mandogalup. Henderson Naval Base is located here and there is a significant community of servicemen and ex-servicemen living in the area. It is home to many young families, with the median age of residents being 33 compared to the state median of 38.

 

Canberra

Home values across the nation’s capital rose by a median 2.2 percent in FY24. The best area for capital growth was Weston Creek. Its median value rose by 5.24 percent to $937,740. Weston Creek is approximately 13km south-west of the CBD. It includes the suburbs of Weston Creek, Holder, Duffy, Fisher and Chapman. Approximately 43 percent of residents have a bachelor’s degree, which is on par with the ACT median but much higher than the national median of 26 percent. Household incomes are about 35 percent higher than the national median. Almost one in five residents work in government administration jobs.

 

Hobart

Home values across Hobart fell 0.1 percent in FY24. The top performing area for capital gains was Sorell-Dodges Ferry with 2.78 percent growth. This took the area’s median home value to $615,973. Sorell-Dodges Ferry is approximately 25km north-west of Hobart. It incorporates the suburbs of Richmond, Sorell, Dodges Ferry, Carlton and Primrose Sands. The area has a large community of baby boomers and retirees, with the median age of residents being 43 compared to the Australian median of 38.

 

Darwin

Home values across Darwin rose by a median 2.4 percent in FY24. The No. 1 area for growth was Litchfield. Its median value moved 3.21 higher to $672,003. Litchfield is about 37km south-east of Darwin and includes the suburbs of Humpty Doo, Acacia Hills and Southport.  It has a high proportion of middle-aged residents, with the median age being 39 compared to the territory median of 33. About 12 percent of residents are Indigenous Australians. The biggest industries are government administration and defence. Median household incomes are about 35 percent higher than the national median.

 

MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Lifestyle
Why It’s Easier Than You Think to Score a Coveted Table When Visiting Paris for the Olympics
By SHIVANI VORA 23/06/2024
Lifestyle
Americans Are All Over Europe This Summer. Here’s How to Outsmart the Crowds.
By ALLISON POHLE 25/06/2024
Money
Burberry Stock Sinks. Is the Problem Its CEO or the Luxury Consumer?
By GEORGE GLOVER 16/07/2024
0
    Your Cart
    Your cart is emptyReturn to Shop