Aussie research reveals Australian homeowners are experiencing significant hardship following 12 Reserve Bank of Australia rate increases, delaying refinancing and putting their home loans and financial security at risk.
Key Data
29% of homeowners are struggling to make their mortgage repayments
13% are concerned they will default on their home loan
11% are using more than 70% of their income to service their repayments
37% have taken on extra hours or overtime as a result of rising rates
22% have taken on a second job as a result of rising rates
71% have not yet attempted to refinance their home loan
48% don’t think refinancing is going to save their household bottom line
Aussie's '12th Rate Rise Effect Report' surveyed 1,000 Australian homeowners, finding rising rates have left households facing significant financial hardship, with 29% of respondents struggling to make their higher repayments and 13% worried they could default on their loan.
Notably, one in four borrowers say the rising rates have left their long-term financial security at risk.
Lendi Co-Founder and Aussie Chief Operating Officer Sebastian Watkins said that the 'Aussie 12th Rate Rise Effect report' is highly concerning for both the financial and mental health of households as they give up financial strategies previously put in place, all while picking up second jobs and working longer hours.
“We’re seeing households contribute less to super and savings which means right now, mortgage holders are sacrificing their long-term security to pay their mortgage - it’s worrying the impact this could have on the economy - as homeownership should provide that simply that - financial security and stability.
“A sizeable portion of Australian homeowners are being forced to make difficult life alterations to afford their higher mortgage repayments.”
The Report reveals 37% of homeowners are having to work longer hours or overtime because of the rate increases, while 22% have taken on a second job. More than 10% have sold longer-term investments, 55% have cut back on holidays and 60% have reduced their grocery spend.
50% of respondents said they have stopped or reduced their contributions to savings, while a further 19% have stopped or reduced their superannuation contributions.
Mortgage Payments vs Disposable Income
Watkins adds Lendi Group data taken from home loan applications that examined borrower’s wage and cost of lifestyle at the time of settlement reveals that if the RBA was to continue to increase the cash rate we could see far more households face considerable financial stress.
“For example, two more rate rises resulting in rates being -6.25% would see 41.7% of fixed rated holders, who took out mortgages at the bottom of the rate cycle, hit a negative net monthly surplus,” he said.
Currently a single homeowner on a $120,000 income, with a $600,000 mortgage, has experienced a monthly repayment increase of around $1300 a month since the rate rises, which accounts for an extra 13% of their monthly pay, leaving them allocating 42% of their income to their mortgage and around a $150 surplus each month.
With current loan serviceability levels, a couple with two young children earning the same amount, this increase would put them into negative monthly service, making them a mortgage prisoner.
“We’re also hearing these numbers anecdotally. A typical household budget might allocate 30% to housing and to see so many pushing it to the absolute limit and taking on second jobs is a worry on an individual level and for the economy broadly.”
Refinancing Out of Mortgage Stress
When asked about their perceptions on refinancing in the current economic market, 48% responded that they are doubtful it will save them much money, while 27% said they trust that their lender is giving them a good deal.
“This is worrying because in this higher rate market, borrowers need to be actively pursuing all avenues to alleviate their mortgage stress - particularly those first home buyers, who we know will really feel the pinch, after allocating so much of their savings to their first home.
“74% told us they have not yet attempted to refinance, leaving 7 in 10 homeowners open to revisiting their options.”
Based on current mortgage rates available, a homeowner with a $600,000 loan who refinanced right now, could save around $350 every month, while those who switch lenders and ditch their loyalty tax can shave an average 46 bps off their mortgage rate.
“These are significant savings which could make a key difference to the financial situation of many Australians, including those in mortgage prison, with new lender options available on the market to assist with this.
“Brokers are there to support homeowners at no charge through this journey and we urge everyone in this situation to reach out and see what options are available to them.
“It’s a great concern for not only financial reasons but also for the mental wellbeing and stability of families. With the potential for more rate rises soon, now is the time to act.”