- On average, borrowers are paying almost 60% more than they were during the record lows recorded in May 2021.
- Late payments of 90 days or more is only 0.7% of all mortgages.
- Housing credit in arrears is only 1.2%.
Many savvy Australians headed to lenders when the best fixed home loan rates were at record lows. CoreLogic‘s Eliza Owen noted that the average fixed rates for home loans of three years or less bottomed out at 1.95% in May 2021.
It is understandable why Australians wanted to lock in some of the cheapest home loans in history, but as the years rolled on, another major shift took place.
The official cash rate was 0.1% during Covid, however, that changed as of May 2022. The Reserve Bank of Australia (RBA) brought the cash rate up to 4.10% this year, and it has been on pause since June.
The fixed rate cliff hits
An explanation of the fixed rate cliff can be found here.
The average variable fixed rates for new owner occupiers are now 5.66%, according to Owen, meaning the average loan size in May 2021 of $549,498 on a 30 year loan term will see monthly home loan repayments shift from $2,017 to $3,175, an increase of nearly 60%.
We are now at the forecast peak transition period, according to Owen.
“[It is] a three-month duration where the bulk of these loans would expire. August provides us with an understanding of how the housing market is performing amid this critical transition phase and fresh insights on the state of the mortgage market from the RBA and APRA.
How many people were on fixed rate loans?
The Covid years saw fixed rate borrowing peak at around 40%, but quickly fell back down after the interest rate hikes began.
The number of new fixed loans is now much lower, below 10% of new home loans.
Owen noted that the large numbers of variable home loans taken out mean most Australian mortgagees have already been exposed to the majority of cash rate rises.
“While variable-rate mortgage holders have been feeling the pinch of rate rises and high cost of living pressures, official data suggests arrears remain in check and are still below pre-pandemic levels, and rising home values since February has likely only further reduced the incidence of loans in negative equity,” said Owen.
How many borrowers are suffering?
The latest APRA data showed housing credit in arrears is ‘extremely low’ at 1.2% of outstanding debt; arrears means payments that are late.
“Non-performing credit, which is late payments of 90 days or more, made up 0.7% of all mortgages in the March quarter of this year, while payments just starting to be late -between 30 and 89 days – were even less at 0.5%,” observed Owen.
While arrears have risen from the 2022 September quarter low of 1%, it remains below the pre-pandemic level of 1.6%, in reference to the March quarter of 2019.
Owen noted that late repayments are not the best measure of mortgage stress, given the lag in data but also lagged nature of late repayments; Owen said those who are struggling with higher housing costs tended to prioritise housing payments, meaning the time to actually miss a payment was pushed out further.
Are borrowers selling up?
The number of new listings has risen, but struggling mortgagees may not be the primary driver of the uptick.
While Owen noted some sales could be attributed to either borrowers doing it tough or borrowers looking to sell before they hit financial hardship, the unseasonable winter lift could simply be down to a strong market.
“New listings activity has often been led by a rise in home values and better selling conditions, with every 1% increase in home values annually translating to an average uplift of half a per cent in new listings,” said Owen.
“With home values rising for the past five months, this may be prompting more selling decisions that did not take place when the market was in decline last spring.”
Another reason could be sellers looking to beat the spring rush, where competition among vendors is likely to be more intense, according to Owen.
A gentle hillock
So far, it appears the cliff has been more of a gentle decline, with Owen observing that good news is on the horizon: the economic slowdown is likely to give the RBA impetus to cut rates in the second half of 2024.
