Rate rise could hurt more than half of Aussie home loan customers

Overhead shot of neighbourhood.

A recent survey commissioned by the Finance Brokers Association of Australia has found that more than half of Australian mortgage holders would struggle to make repayments if interest rates were to go up.

More than 1,000 borrowers were asked if they would be able to afford a $300 increase in their monthly repayments, with 57 per cent of respondents answering “not at all.”

The FBAA’s managing director, Peter White said this is particularly troubling for borrowers who have rushed into the market without the requisite 20 per cent deposit. 

"Many Australians are clearly on the brink and are sleepwalking into disaster, living in the false hope that rates will stay this low," he said.

White also warned that those who might have borrowed beyond their means could find themselves with negative equity (that is, owing more on their mortgage than their home is worth) if a correction in the property market occurs.

“Add a mortgage increase they can't pay, and there could be a lot of people in real trouble," he said.

When will rates go up?

While the Reserve Bank had maintained throughout the year that official interest rates would stay at their current levels until 2024, it was forced to withdraw that guidance at its November policy meeting.

It now admits that a 2023 rate hike is very much a possibility. 

Borrowers will still have some breathing room, however, with RBA governor Philip Lowe explaining that current wage and inflation figures are not strong enough to warrant an increase in the cash rate in 2022. 

The RBA boss is also acutely aware of the problems that tightening monetary policy would create for an over-leveraged population.

Fixed rates were already edging upwards throughout the year, but since the RBA’s announcement this month, home loan lenders have wasted no time in lifting them further. 

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This month, three of the big four banks have raised fixed rates — Westpac by 10 to 21 basis points, NAB by 20 to 51 basis points, and ANZ by 20 to 40 basis points.

Despite these moves, there is still value to be found among fixed options. At the time of writing, the average variable rate in our database sits at 3.10% p.a. — well above the average 3-year fixed rate at 2.51% p.a. 

Beyond locking in a fixed rate, borrowers can also prepare for a rate hike by splitting their loan or even refinancing to another lender.

For more information about mortgage and 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.

Home loan comparisons on Mozo - last updated 31 May 2024

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  • Basic Home Loan

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  • Variable Home Loan 90

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    Initial monthly repayment
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    Owner Occupier, Principal & Interest, LVR<80%

    interest rate
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    Initial monthly repayment
    6.14% p.a. variable
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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.

^See information about the Mozo Experts Choice Home Loan Awards

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