Home loan borrowers sandwiched by rate rises and cost of living

A man stuck between two halves of a house with his hands out between them

The number of Australians falling behind on their home loans has reached its highest level since March 2021, according to CoreLogic.

In March 2024, mortgage arrears reached 1.6%, which accounts for borrowers who are both falling behind on their repayments by 30-89 days (0.68%) and those who are 90 days past due (0.93%). 

It’s the latter group, which CoreLogic calls ‘non-performing’ loans, that are contributing to the rise in mortgage arrears, the company’s executive research director Tim Lawless says.

“The upwards trends in arrears has been most influenced by non-performing loans, where the arrears rate has risen to 0.93%,” he said. 

“The non-performing arrears rate is now slightly higher than it was at the onset of COVID (0.92%) and above the series average of 0.86%.

“Borrowers who are 30-89 days overdue on their repayments comprise 0.68% of loans, up from just 0.35% in Q3 2022 but the highest level since Q2 2020.”

Between May 2022 and March 2024, the average home loan interest rate in the Mozo database grew by 3.81%, according to Mozo’s home loan report 2024.

Aside from adding thousands of dollars more to the average borrower’s mortgage repayments, it also means the Australian Prudential Regulation Authority’s (APRA) mandated serviceability buffer of 3% wasn’t enough of a breakwall to keep out the rising tides of 13 cash rate hikes.

The cost of living is another big part of what has changed for a lot of Aussie borrowers. 

According to Lawless, living costs are taking bigger bites out of household incomes, Australians are paying more tax than ever before, and we’re dipping into our savings accounts more often, eroding the savings buffer many built for themselves during the pandemic. 

Lawless says mortgage arrears will likely rise further, as the unemployment rate picks up and savings are further eroded.

However, inflation remains slightly higher than the RBA’s 2-3% target range, the latest figures at 3.6%, according to the Australian Bureau of Statistics (ABS). This means it’s unlikely we’ll see an interest rate cut until at least November 2024, if not early 2025, provided inflation comes down.

This is why it’s important to compare home loans, keep up with changing interest rates, and watch out for any chances you might get to refinance.