Higher mortgage costs causing stress in four of five households

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Australians with a home loan are having a tough time adjusting to a rapidly changing interest rate environment, with research by Aussie showing that inflation and higher mortgage costs have caused increased stress in four of five households.

Aussie also found that nearly one in five mortgage holders (18%) were already facing ‘significant mortgage stress’ under a 1.35% cash rate, while 30 per cent admitted that defaulting on their home loan is now a major concern.

The Reserve Bank’s about face on interest rates this year has left many households in the lurch, with three in ten mortgage holders (28%) admitting they did not factor in a potential cash rate rise prior to taking out their loan.

What’s more, almost half of all fixed rate mortgages are set to expire between June 2023 and June 2024, meaning the full impact of this tightening cycle won’t be felt for some time yet.

Adjusting to a lift in interest rates may prove to be a struggle, but there are ways to minimise the impact, whether it’s switching to a cheaper loan with your existing lender or refinancing to a new lender altogether.

However, Aussie’s research found that only one in seven mortgage holders (14%) have taken advantage of these options, with many scrambling to make a move once the RBA began hiking rates in May.

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State broking manager at Aussie, Karen Sorrenti said that for the remaining Australians, taking action or investigating alternatives “is one key factor in addressing the mental and emotional strain.”

At a macro level, economists have maintained that higher rates do not pose a threat to the housing market, with the savings many households had accrued over the pandemic period helping to cushion the blow.

ANZ senior economist Adelaide Timbrell said as much in a recent research note, pointing out that the bulk of debt is held by high income households who are “more likely than others to have large savings buffers and more income to cover inflation and interest rate changes.”

“That is, the people with the most debt are also the people with the biggest offset balances which cushion some of the falls in housing prices.”

For information on lending trends, head over to our home loan statistics page. And if you’re in the market for a home loan, visit our home loan comparison page, or browse the selection below.

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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