“That same magnitude of increase in interest rates would be a bigger burden on borrowers who have less buffer from other savings or accrued wealth,” she said.
Loading
Chen also said timing played a factor in whether borrowers were likely to fall behind.
Loans that were approved during 2021 and 2022 are deteriorating more than other years, given interest rates were historically low and house prices were peaking, meaning borrowers needed to take out larger loans because housing was so expensive, she said.
She said investment loans had not yet worsened because many investors are still on interest only repayments, but warned this could change.
“For the first three years of interest only payments, compared to a principal and interest loan, that borrower has not been reducing the loan amount, so once you step up the interest it will be a much bigger shock,” she said.
She warned arrears rates are likely to rise moderately this year, although a strong labour market and solid housing market would limit the impact.
Home owners are under pressure from high interest rates and the cost of living.Credit: Nikki Short
Mortgage broker Rob Lees is seeing households under pressure cut their discretionary spending to manage their mortgage repayments.
He referred one couple to their bank’s hardship arrangements even though both were working. They had savings to draw on, but their funds had almost run out.
“People that took out very big loans when rates were very low, it tends to be if people have million-dollar type loans even with two incomes that tends to be the people who are saying they’re struggling,” Lees, the principal of Mortgage Choice Blaxland, Penrith and Glenmore Park said.
Loading
“I have a lot of conversations with people who are saying they’re struggling but probably in terms of referring people to hardship I think probably at most I’ve only done that about two or three times,” he added, although some may have referred themselves.
Another handful of people have sold their investment property to reduce their debt, he said.
He is trying to help clients save on their mortgages and perhaps consolidate debts such as credit card debts or personal loans.
AMP deputy chief economist Diana Mousina said mortgage arrears overall have risen to pre-COVID levels but are not anywhere near high enough levels to pose a risk to financial stability.
“The households you’re most worried about are the ones that have little free cash flow after they pay for all their essential items,” she said.
Households who have taken out large loans or who borrowed in the last few years are at higher risk, as are workers who lose their jobs as the unemployment rate rises.
She said the outer suburbs were likely overrepresented in the arrears data given their more modest incomes. Buyers in the inner suburbs are more likely to be purchasing more expensive properties.
As for any relief from an interest rate cut, AMP forecasts it is unlikely until November and Mousina said it may be longer.
“Interest rates are likely to stay quite elevated which will prove to be tough for the homeowner.”