The mortgage crisis in Australia is now so bad a mother of two eats one meal a day and can’t afford Easter eggs for her kids.
Mandy Chen, 45, is among 880,000 Australian borrowers whose ultra-low fixed-rate loans expire in 2023.
Those who set their rate at less than 2 percent in 2021 face monthly payments of more than 7 percent when they switch to a variable rate that “returns.”
The 10 consecutive monthly increases in the Reserve Bank interest rate since May 2022 have pushed the cash rate to an 11-year high of 3.6 percent.
For fixed-rate borrowers like Ms. Chen, life is very difficult indeed.
She now eats one meal a day – just noodles for lunch so there is enough food for her children.
“I only eat my one meal a day,” Ms Chen told Daily Mail Australia.
“I don’t have breakfast, and I don’t have dinner.”
Darwin’s mother put off visiting her elderly parents in Taiwan, because rising mortgage payments meant she could barely save.
Mandy Chen, 45, is among 880,000 borrowers whose ultra-low-rate loans expire in 2023
With Easter just a week away, she’s also worried that she won’t be able to buy Easter eggs for her 8-year-old son and five-year-old daughter.
What Australian banks expect now
Commonwealth BankAnother increase in the interest rate, which raised the cash rate to 3.85 percent
NABAnother increase in the interest rate, which raised the cash rate to 3.85 percent
WestpacAnother rise in prices takes the cash rate to 3.85 percent
ANZTwo more price hikes, with the money rate raised to 4.1 percent
“I panic, kind of,” she said, “but you just have to keep the hopes up — especially having young children, you can’t show your depression in front of them.”
Easter: No chocolate for the kids.
“How hard is that?”
Ms. Chen and her husband took out a $210,000 loan to purchase the Darwin unit in 2016 for a 25-year term.
With the remaining $201,000 of their loan, they installed $121,000 of it for two years in 2021, with the remaining $80,000 at a variable rate.
The fixed rate of 1.74 percent expires in April, which means they will face moving to a variable rate of 8.05 percent.
Total monthly loan payments are now $1,000, based on the Commonwealth Bank calculator.
But if Ms. Chen were forced into an 8.05 percent rate of return, next month that fixed portion of her loan would go up by $440.
Her total monthly payments will rise to $1,451 — a 40 percent increase.
Stephen Murvia, who works in the financial sector, faced his mortgage rate rising to 7.89 per cent in June when the ANZ’s two-year fixed rate of 1.89 per cent was about to expire.
Borrowed $670,000 over 25 years to build a four bedroom house with double garage and pool in North Brisbane. At a flat rate, he was paid $2,800 a month. His payments would rise to $5,000 a month — a 79 percent increase — if he didn’t refinance.
Morfea dropped to a variable rate of 5.29 percent, which brought its premiums to just over $3,900 per month. This capped the increase to a manageable but huge 39 percent.
Stephen Morvia, who works in the financial sector, faced his mortgage rate rising to 7.89 per cent in June when the two-year ANZ fixed rate of 1.89 per cent expires in June.
Morfea said he was considered a loyal customer, but he feared it could be a lot worse for those unable to refinance because they had a smaller mortgage deposit and were stuck with “ridiculously high starting rates.”
‘For people who aren’t considered loyal, and they’re in foreclosure, these poor slackers are stuck paying 7.89 per cent – it blows me away,’ he told Daily Mail Australia.
“It’s just a highway robbery, buddy. The banks are screwing around. We’re in for a bit of a rough time.”
“I’ve been in the financial game for almost 24 years, so I’m lucky I was able to refinance in June, but you’ve got some of these poor people whose financial situation may have changed, and they can’t refinance.”
Even with a better refinance deal, Morphea will have to forgo bonuses like going out with colleagues to buy fish and chips once a week as his annual payments rise by $13,200 annually.
“There will definitely be a tightening of the budget,” he said.
“I will definitely feel it.”
Morphea, who is also paying off the car loan, said there will be fewer social outings.
Home loan comparison site InfoChoice has detailed RBA data showing that 880,000 ultra-low fixed rate fixed rates will expire in 2023. In the second half of 2023, a monthly average of 86,553 of these fixed rate loans will expire. Look at transition borrowers. To a much higher “re” variable rate unless refinanced
“I have a slightly larger income that would soften the blow a bit but with that being said, I still have to tighten my belt,” he said.
“There are other loans eating up my income – going out to lunch with friends, and that had to be cut back.”
Figures from the Reserve Bank of Australia show that the very low 880k fixed rate will expire in 2023.
Financial comparison site InfoChoice breaks that down.
In the second half of 2023, an average of 86,553 fixed-rate loans will expire each month, forcing borrowers to raise variable rates unless they refinance.
This is equivalent to the capacity of Accor Stadium in western Sydney each month.
InfoChoice Market commentator Harrison Astbury said doubling the monthly payments would, in some cases, be disastrous for the economy.
“Our research shows that a group of people larger than the NRL Grand Final audience have their disposable income suddenly drop to the bone every month, and that will really suck the life out of the economy,” he said.
The 10 consecutive monthly increases in the Reserve Bank interest rate since May 2022 have pushed the cash rate to an 11-year high of 3.6 percent, causing pain for floating-rate borrowers, with the worst for fixed-rate borrowers (pictured). Mayor Philip Lowe in Sydney.
Reserve Bank Assistant Governor Christopher Kent acknowledged this month that the impact of the delay in expiring fixed rates has yet to be felt, as a third, or 35 percent, of home borrowers will have a fixed rate by early 2022.
This means that it will likely take longer than usual to see the full impact of higher interest rates on household cash flows and household spending.
“While fixed-rate loans have since begun to emerge, and borrowers in general have shifted to variable-rate loans, this adjustment still has some way to go,” said Dr. Kent.
“So the unusually high share of fixed-rate loans when the Bank started to tighten monetary policy has added a further delay to outstanding mortgage rates.”
Having so many fixed-rate mortgages expiring at the same time was historically unprecedented, Astbury said.
“The mortgage market turned its head in mid-2021 when more than half of all new mortgages were fixed,” he said.
“Even the Reserve Bank is still blind because there is a significant delay in the impact of interest rate hikes due to this phenomenon.”