Record numbers of homeowners are at risk of defaulting on their mortgages because of rising interest rates
- More pain expected as mortgage hikes continue to bite
- Peak in the number of customers who cannot repay
According to one of the country’s leading bankers, the number of Australians defaulting on their mortgages could reach unprecedented heights.
Westpac CEO Peter King told a business summit on Tuesday next year that this will result in a spike in the number of customers unable to pay back their homes.
He said this can be largely attributed to the 10 consecutive rate hikes over the past 11 months.
According to one of the country’s leading bankers, the number of Australians defaulting on their mortgages could reach unprecedented heights. The photo shows a woman looking at a computer from a couch
The next 12 months could see a spike in the number of clients unable to repay their homes. A house is depicted
“Interest rates are a blunt tool. What we’re looking at in our portfolio is who might need help,” Mr King said.
“The part of the portfolio that we’re watching closely (is) high debt/income – that’s people who have borrowed to their maximum debt capacity.”
Research by SQM found that as of March 2023, the number of properties sold under ‘bad conditions’ had risen from 5,917 the previous month to 6,220.
“The increase in distressed sales activity was mainly driven by an increase in New South Wales, Victoria and Queensland,” a statement published Tuesday said.
From March 2022 to 2023, the number of distressed listings in NSW increased by 68 percent.
“These trends indicate that the Australian property market continues to grapple with the impact of economic uncertainty, with an increasing number of homes being sold under challenging conditions,” the SQM statement said.
The Reserve Bank board left cash rates unchanged at 3.6 percent for the first time in a year when it met on Tuesday.
But homeowners hoping this could spell the end of the RBA’s tightening cycle could be hurt even more later in the year.
“The board expects that some further monetary policy tightening may be necessary to ensure inflation returns to target,” said Governor Philip Lowe.
“The decision to keep interest rates stable this month gives the board more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty.”
Mr Lowe said the bank will be watching closely trends in household spending, inflation and labor market data before its next meeting, just ahead of the May budget.
“The board remains resolute in its determination to bring inflation back to target and will do whatever it takes to achieve that,” he said.
Australians have been spared a rate hike for the first time in a year, but the relief is likely to be short-lived
Since May last year, the RBA has aggressively raised rates from a record low of 0.1 percent in an effort to curb high inflation.
Inflation rose to 6.8 percent in the 12 months to February, down from 7.4 percent year-on-year growth in January and down from a peak of 8.4 percent in December.
But it’s still well above the bank’s target range of two to three percent.
ANZ boss Shayne Elliott said the challenges for Australian homeowners were far from over.
‘The world looks different when you live in a world with rising interest rates. To paraphrase a quote from economist JP Morgan, “When the Fed slows down the economy, someone always goes through the windshield,” he said.
“So we have to stay alert, not alarmed. I don’t think we’re heading for another major crisis, but that doesn’t mean there won’t be unrest and people won’t be affected by it.’
The central bank board raised cash interest rates in March to the highest level since June 2012.
Mr Lowe said inflation could be brought back into the target range of 2 to 3 per cent by mid-2025 and tempered predictions of multiple rate hikes, in a departure from his earlier analysis of impending rate hikes.