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Suburbs struggling the most amid RBA’s interest rate hikes revealed

Suburbs struggling the most amid RBA's interest rate hikes revealed

An estimated one in five mortgage holders – or 551,000 Australians – will struggle to pay back their mortgage if interest rates continue to rise as expected.

Comparison site Finder found a whopping 20 per cent of mortgage holders will be in serious mortgage distress if their home loan interest payments increase by three per cent. Home loans have already increased by 1.75 per cent since May.

It comes as separate data from S&P Global revealed which suburbs in Australia are most at risk of defaulting on their home loans.

The Northern Territory came out as the worst state, with the highest percentage of mortgage holders more than 30 days behind on payments.

A fringe suburb in Perth topped the list in terms of debt overdue to the bank, while Sydney, Melbourne, Adelaide as well as some regional areas also received a poor rating.

Of even more concern was that the research was conducted before the Reserve Bank of Australia (RBA) starting increasing the cash rate, meaning these areas will be even more at risk of defaulting on their loans now.

For four consecutive months the RBA has hiked interest rates. Last week, after its August meeting, the central bank brought up the cash rate to 1.85 per cent.

The cash rate has already risen by 1.75 percentage points since May, following two years of interest rates sitting at a record low of 0.1 per cent.

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According to S&P Global, rising mortgage repayments have hit suburbs on the fringes of big cities the hardest.

Their research measured the weighted average of arrears more than 30 days past due on residential mortgage loans in publicly and privately rated Australian transactions.

The Perth suburb of Maddington, 20km from the city centre, topped the list of “Worst performing postcodes” in the report.

As of early April, 4.67 per cent of homeowners in Maddington are in arrears.

That was closely followed by Dolls Point, located in southern Sydney.

Of the mortgaged houses in that NSW suburb, 4.33 per cent are behind on payments.

In third place was another WA postcode, Byford, in Perth’s southeastern edge, with an arrears percentage of 4.16 per cent.

Western Australia had one more suburb on the list – Ballidu in the Central Midlands – while NSW had a total of four.

Bankstown and Castlereagh, from Sydney’s west and southwest, were also experiencing substantial pressure. Katoomba from the Blue Mountains, south of Sydney, also earned a spot in the report.

Victoria, Queensland and South Australia each had one suburb on the list – Broadmeadows in Melbourne’s north, Barkly in Queensland’s Mout Isa region and Hackham, an outer suburb of Adelaide.

A breakdown of each state showed that the Northern Territory was the most behind in its mortgage repayments, at a rate of 1.75 per cent.

Western Australia came in at 1.40 per cent, as of April this year, before interest rates started to be hiked.

Victoria received a score of 0.87 per cent while 0.85 per cent of NSW mortgage holders were also in mortgage arrears.

The ACT fared the best, with an arrears rate of only 0.33 per cent.

Overall, the national average was 0.71 per cent for Australia’s arrears rate, as of April.

“The swift pace of interest rate rises will create debt-serviceability pressures for households with less liquidity buffers and higher leverage,” the report noted, forecasting that sometime in the third quarter of this year a higher arrears rate would show up in new monthly date .

Finder also released a damning statistic about the state of Australia’s home loan debt.

A recent survey conducted last month concluded that more than half a million homeowners would be “on the brink” if interest rates rose by three per cent.

Of those, 145,000 Australis said they would consider selling their home if rates jumped because they would “struggle a lot” to repay them. That represents about five per cent of Australia’s mortgage holders.

The survey also found that 14 per cent of admitted respondents they might fall behind on their repayments or other bills.

Nearly half (48 per cent) would be able to manage, but would have to cut down on their spending, according to Finder.

Only a quarter of participants said a rate rise would not change their lifestyle or spending habits at all.

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Property: Cities where you can still snap up a bargain on housing in Australia revealed

Property: Cities where you can still snap up a bargain on housing in Australia revealed

Rising interest rates might be putting off some people from purchasing a property amid fears they cannot afford the mortgage stress.

But whether you are looking for a house to make your home, or an investment property, there are still some bargains to be found across Australia.

Real Estate Institute of Australia president Hayden Groves told NCA NewsWire markets like Sydney, spurred on by low interest rates and economic stimulus, had experienced rapid price gains of about 30 per cent in 2021, peaking earlier this year.

“Other east coast markets have performed similarly well and are now beginning to moderate as affordability constraints impact,” he said.

“In contrast, the markets of Perth and Darwin, since early 2020, have underperformed comparative to east coast cities.

“They are now enviable, more affordable and continue to grow thanks to migration-led demand, strong economies and tight housing supply.”

Mr Groves observed that in the hyper-inflated markets of Sydney and Hobart, prices were beginning to rationalize due to buyer uncertainty.

“Brisbane’s market remains buoyant thanks to migration pressures fueling demand, whereas Adelaide continues to perform well thanks to the flow-down effects from relocations from higher priced regions across Melbourne,” he said.

“Price rises have already reversed in Melbourne, Sydney and Hobart, while Perth and Adelaide remain strong off the back of more constrained growth.”

Mr Groves said Perth remained the most affordable capital in Australia.

“Average mortgage holders part with around 24 per cent of their wages to service their loans,” he said.

“Compared this to Sydney-siders who currently give up on average 46 per cent of their salary to meet their mortgage payments.

“Median house prices in Perth are about $550,000, less than half that of Sydney’s median prices and well below Hobart, Brisbane and Adelaide.”

Darwin and some major regional city areas in eastern Victoria, north Adelaide and northeast Tasmania also offered good value, Mr Groves added.

He noted interest rates remained low and were coming up from “emergency” levels.

“It is good news that Australian property markets head back to a more balanced environment, although as housing supply remains below underlying demand, property values ​​are likely to retain much of their gains experienced since early 2020,” he said.

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House prices: Interest rate rises and property downturn could be good for buyers

House prices: Interest rate rises and property downturn could be good for buyers

Rising interest rates and uncertainty are causing the property market to cool around Australia. Sydney and Melbourne markets are leading the decline at -2.7 per cent and -0.9 per cent respectively, looking at CoreLogic data.

Based on the Australian Bureau of Statistics (ABS) average property price of $1.2 million in Sydney and $966,500 in Melbourne, this reflects respective discounts of $32,999 and $8699 on the average property today.

With inflation at a 21-year high of 6.1 per cent and interest rates at 1.85 per cent and tipped to continue to rise, it seems likely there will be more pressure on property prices in the short term.

But maybe this could be a good thing. Watching the huge property run over the last couple of years, many people were either priced out of the market or felt property had become overcooked.

With prices on the decline, is it now a smart time to jump in?

State of the property market

Through 2020-21 we saw the value of all property in Australia increase by 23.7 per cent, the strongest growth seen since 2003. In contrast to the weak property market we’re seeing today, for the same time last year the average house price rose $107,000 in Sydney and $41,000 in Melbourne in just three months.

In 2022, we’ve been seeing declines driven by rising interest rates and uncertainty about how the Australian economy is going to ride out the current inflation crisis. The Reserve Bank of Australia (RBA) initially forecast a 15 per cent decline in the property market by the end of 2023, with further falls predicted in 2024.

Worth noting is that not all areas have been (or likely will be) impacted by this downturn equally. We’re seeing property prices hold up more in areas with strong demand and limited supply, and prices weaker in areas that don’t have the same fundamentals. This trend is likely to continue throughout this period of property market disruption.

The key driver of softer property prices is rising interest rates, which have increased by 1.75 per cent over the last four months adding thousands to the cost of repayments on the average Aussie mortgage. With rates forecast to continue rising through 2022 as the RBA grapples with the current global inflation crisis, further pressure will be placed on borrowers and the property market as a result.

Advantages of buying property now

With the property market softening and fewer buyers in the market, people buying property today are doing it at a solid discount to the prices we’ve seen recently.

There’s a lot of fear and uncertainty out there. In my experience helping people with their investing through up and down markets, I’ve found that this uncertainty creates opportunity.

During the height of the Covid crisis there was also a lot of talk about the potential for big property market declines, and a lot of people were too fearful to buy property. Many people were sitting on the sidelines waiting for the uncertainty to pass, convinced there would be a huge crash that would allow them to pick up even more of a bargain.

But before we knew it, the ‘crisis’ was over and the uncertainty was gone. The property market didn’t fail as far as was expected, and many people missed the boat.

In my view, the current conditions are perfect for property buyers to pick up a bargain.

Disadvantages of buying property now

That being said, buying property today does come with risk. The main one that any property buyer needs to manage in the short-term is the likelihood of interest rates rising further.

Rising interest rates for property buyers today mean that you’re highly likely to be paying more for your mortgage in six months than you are today. As mentioned above, rates are tipped to raise around 2 per cent from their current levels in the short-term – meaning you need to be prepared and ready to fund higher mortgage repayments.

There is also potential for property values ​​to fall further in the short-term. Buying and then selling property is an expensive exercise, so you never want to be forced to sell a property. But when values ​​are declining, it’s even more important to protect yourself.

When is the best time to buy property

Looking back, it’s easy to identify ‘good’ times to buy property, but nobody has a crystal ball. We never really know where the property market is going until it actually happens.

And further, while there have been times that we can see would have been better than others to buy property, values ​​have consistently risen over the long-term. That means that over any 10-year period, your asset would have increased in value.

This suggests that the best time to buy was always 10 years ago. The second best time is today.

My view is that if property is on your money road map, now is a great time to buy. You’ll be able to take advantage of the uncertainty, pick up an asset that was a good investment six months ago at a higher price, and move forward on your money journey.

Finding a good quality property is crucial, and having a rock solid plan absolutely necessary to protect your risk. But get these two things right and you’ll be set for success, and will position yourself to come out of this period of disruption in a stronger position than you went into it.

The wrap

Buying property is scary at the best of times, but when fear and uncertainty are high it’s even harder. But property has been one of the most effective ways to invest to build wealth for the last hundred or so years in Australia, and I don’t see that changing any time soon.

Take the time to get your approach right, then make it happen – your future self will thank you for it.

Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth, and author of the Amazon best-selling book ‘Get Unstuck: Your guide to creating a life not limited by money’.

Ben has just launched a series of free online money education events to help you get on the front financial foot. You can check out all the details and book your place here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.

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Melbourne single mum struggling to pay extra $360 a month after RBA interest hike

Melbourne single mum struggling to pay extra $360 a month after RBA interest hike

A single mum’s “dream” of becoming a homeowner has become more like a nightmare as she struggles to survive amid the rising cost of living.

Jodi Cameron, 40, from Melbourne, currently has nothing in her bank account after building her house cost more than expected. She can’t even afford to complete the house, with her driveway unfinished because she ran out of cash.

On Tuesday afternoon, she was hit with more bad news; the Reserve Bank of Australia had increased interest rates again, for the fourth month in a row.

It means the single mum, with two daughters aged four and eight, must now fork out an extra $140 every month to pay back her mortgage.

In total, since the central bank started increasing interest rates in May, the family is now paying back an extra $360 a month — money it desperately needs.

“It’s just horrible,” Ms Cameron told news.com.au.

“I do find myself in a situation where paying rent and a mortgage and daycare fees, there’s nothing left.”

Currently, her savings account stands at $0, she said.

The mum worked throughout the Covid pandemic as a disability support worker and blames her current predicament on one thing — missing out on a government grant.

She had factored in receiving a $15,000 grant to help her build her own home but missed out, leaving her financially wrecked.

“I just wanted to own my own home,” Ms Cameron explained.

“It’s just disgusting, it’s so frustrating, I work my guts out, all I wanted was the great Australian dream.”

Her variable interest rate has gone up from 2.79 per cent to 4.5 per cent in the past three months, and is set to go up even further after the rate hike on Tuesday.

“I’m not on a fixed mortgage, I don’t know how I’m going to do it,” Ms Cameron said.

“I’m probably going to have to pull my [youngest] daughter out of daycare because I can’t afford daycare. That also means, how am I meant to work from home with a child?”

As a single mum with no family to fall back on, Ms Cameron had resigned herself to renting but in 2020, she was given hope that she might be able to break into the property market.

The federal government announced the HomeBuilder grant scheme in a bid to increase the disruption to the economy and the building sector during Covids, where eligible homeowners received $15,000 to form part of the payment for a building project for their primary residence.

Ms Cameron met all the criteria for the grant so bought a $263,000 block of land in Lang Lang, a regional town southeast of Melbourne, in August 2020 in the hopes of setting herself up financially for the future.

“I got on the low deposit scheme, I didn’t need a massive deposit,” she explained.

Then in March the following year, she signed a build contract which cost $300,000 for a four-bedroom, two-bathroom home.

She only needed a 5 per cent down payment for the land and the build contracts and was expecting the extra $15,000 from the grant to provide a helpful buffer to afford the progress payments.

But then she logged back onto the HomeBuilder online portal and was devastated to discover she had missed a key due date — which her broker and bank had never mentioned to her.

“I missed a portal cut off date that was never shown or advertised anywhere,” Ms Cameron lamented.

As a result, she was not able to be part of the scheme.

Near the end of her build, the mum ran out of funds and couldn’t afford to pay for a driveway.

“I’ve got no driveway, it’s just mud, I can’t afford it, it’s not nice to have that money you relied on ripped away from you,” she added.

“I owe the real estate the last month’s rent which I can’t pay.

“I assumed I would have this $15,000 to help me out, I don’t have it. This grant meant a lot.”

The mum is now waiting with bated breath as the Reserve Bank is expected to keep hiking interest rates till the end of the year.

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