The proportion of younger Australians struggling with higher mortgage rates is much worse than feared, with one in three defaulting on their payments, a new survey shows.
The Reserve Bank of Australia’s 10 consecutive interest rate hikes since May are weighing on Finder’s monthly Cost of Living report which shows that 31 per cent of Gen Z borrowers, born after 1995, have not paid a mortgage in the last six months.
By comparison, 11 percent of Generation Y, also known as Millennials, had missed a payment, while 8 percent of Generation X borrowers were in that position.
“Increases in housing costs are having a bigger impact on Australian households than any other metric,” the Finder report said.
“Younger generations were much more likely to report financial difficulties managing their mortgage payment.”
Even if borrowers aren’t behind on payments yet, the cost of living is making it harder to pay the bills, with 37 percent of those surveyed telling Finder they were struggling to meet their mortgage obligations.
The Reserve Bank of Australia’s 10 consecutive interest rate hikes since May are truly scathing with Finder’s monthly Cost of Living report showing that 31 per cent of Gen Z borrowers, born after 1995 onwards, they have not paid a mortgage during the last six months image)
Borrowers with an average mortgage of $600,000 have seen their monthly mortgage payments increase by 37.5 percent to $3,683 from $2,678 since May of last year.
Borrowers who have not repaid a loan in the last six months
GENERATION Z: 31 percent for those born after 1995
GENERATION AND: 11 percent for those born between 1981 and the mid-1990s
GENERATION X: 8 percent for those born between 1966 and 1980
Source: Finder Cost of Living Report, March 2023
That equates to an annual payment that skyrockets by more than $12,000.
That’s based on the average discount home loan rate rising to 6.22 percent from 3.65 percent for those with a smaller 10 percent mortgage deposit.
This came as the RBA cash rate rose to an 11-year high of 3.6 percent, from a record low of 0.1 percent just nine months ago.
The maturity of ultra-low fixed-rate loans is another concern, as the Reserve Bank has signaled that 880,000 mortgages will move to a higher ‘reversing’ variable rate in 2023.
RateCity said borrowers who locked their rate at 1.92 percent in May 2021 faced moving to a much higher rate of 7.43 percent, which would lead to a 69 percent increase in monthly payments. .
Reserve Bank of Australia Assistant Governor Christopher Kent said many fixed-rate borrowers had not yet adjusted their spending habits, arguing this contributed to a lag effect with higher interest rates.
“I suspect many fixed-rate borrowers don’t adjust their spending in advance, but wait until they move to the higher rate,” he told the KangaNews DCM summit in Sydney on Monday.
“Even those who look further into the future are likely to make moderate adjustments at first, and further adjustment will be required at the point of change.”
The Reserve Bank of Australia’s 10 interest rate hikes since May are leaving a sizeable minority of borrowers struggling to pay their bills (Governor Philip Lowe at Sydney’s Bonnie Doon Golf Club pictured)
A borrower is considered delinquent or delinquent if they are 30 days or more behind on their mortgage payments.
Moody’s Investors Service credit rating agency expects more borrowers to fall behind on their payments.
“Australia’s residential mortgage delinquency rates, which increased slightly during Q4 2022, will continue to rise through 2023 as rising interest rates and high inflation erode borrowers’ ability to repay debt. “, said.
“Non-performing loans will only rise moderately, however, as low unemployment and prudent credit standards will mitigate risks.”
In the December quarter, 1.07 percent of residential mortgage-backed securities, or bonds linked to a pool of mortgage loans, were in default, up from 0.96 percent in the September quarter.
That covered the first eight RBA rate hikes.
ANZ and NAB expect the Reserve Bank to raise interest rates in April and May to 4.1 percent.
But Westpac and Commonwealth Bank predict one more rate hike during that time, taking it to 3.85 percent.
Headline inflation rose to a 32-year high rate of 7.8 percent in 2022, a level well above the RBA’s target of 2 to 3 percent.
Finder surveys 1,000 Australians every month, asking them 60 questions about their finances.