Australians who are already spending at least 50 per cent of their income on mortgage repayments face losing their home due to interest rate rises.

The ABC reported that close to 40 per cent of mortgage holders who had ultra-low fixed rates could be about to fall off a financial cliff as the fixed term ends next year.

A recent survey by financial brokers, Savvy predicts that a large portion of mortgage holders will go into mortgage stress because of recent interest rate hikes. Many Australians were shocked when the RBA increased the official cash rate by a massive 50 basis points, which is the highest monthly increase since February 2000.

Savvy surveyed 1005 people, 424 of whom had mortgages. And 26 per cent of those surveyed said they would go into mortgage stress, which is defined as an individual spending more than 30 per cent of their net income on mortgage repayments.

With increasing mortgage rate hikes, 53 per cent of survey participants said that they would have to make cuts in other areas to ensure that they could still meet their mortgage repayments.

The survey revealed that 38 per cent of 25-34-year-olds and 35-44-year-olds were worried about their mortgage repayments and the overall cost of living.

Older demographics were not as worried with only 18 per cent of 55-64-year-olds and 6 per cent of over 65-year-olds being worried about their living costs.

Just under half (44 per cent) of mortgage holders spent between $251 and $500, 23 per cent spent between $501 and $750; and 18 per cent spent more than $751 on their mortgage repayments each week according to the Savvy survey.

Savvy CEO Bukk Tsiyvakas spoke to Nine News and said: “the COVID mortgage holidays are over and for some families, there may not be much left in the tank when it comes to covering mortgage repayments.”

Financial counsellors who spoke to the ABC said that some Australians were already under financial stress and that there had been an increase in banks trying to repossess people’s homes.

Westjustice director, Stephanie Tonkin informed the ABC that in the last two months alone the organisation has seen 60 clients, with about half of them having received eviction notices.

Westjustice is trying to negotiate with the lenders so that the clients do not lose their homes. Many of the clients they are helping are still getting back on their feet after the COVID pandemic.

Mr Tsiyvakas advised mortgage holders to look at refinancing if they can before they get into financial strife.

“If you can refinance at a lower rate – lock it in now. Nought point eight-five per cent is still a record low; so get around to refinancing or fixing your rate as a first priority.”

Mortgage holders should take heed of his advice because the RBA has already said that the cash rate will likely keep increasing until inflation is within its target of two to three per cent. That means interest rates could go up to at least 2.5 per cent.

The good news is that fewer than 1 per cent of Commonwealth Bank mortgage holders were in arrears and NAB told the ABC that 70 per cent were ahead on their mortgage repayments. They did not provide their arrears data.

Financial Counselling Australia CEO Fiona Guthrie told the ABC that a lot of people had borrowed to their capacity and she is shocked that the banks allowed people to borrow six or more times their income with minimal deposits.

APRA data from the March 2022 quarter shows that 23.1 per cent of new mortgages had a debt to income ratio of six or more times in dollar terms. That is down from a discord high of 24.3 per cent in the previous quarter.

She said the organisation has already seen signs that people are under financial stress and expects that to only get worse with the cost of living and interest rate increases.

Ms Guthrie voiced her concern that some people will be stretched even more because they have a mortgage where they make interest-only repayments rather than any principal off their home loan.

RateCity research director, Sally Tindall was more optimistic and indicated to the ABC that most Australian households would be able to absorb the rate hikes but did acknowledge that some people would struggle with the double whammy of a higher cost of living and mortgage repayments at the same time.

5 tips to manage your mortgage

  1. Shop around for the best mortgage rate
  2. Review your budget to see if you can reduce expenditure
  3. Look for ways to increase your income
  4. Talk to a financial counsellor if you’re struggling
  5. Consider refinancing

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