While Australia is on a knife edge waiting to see if interest rates will be raised, large numbers of people are already struggling.
A shocking level of Australian households with mortgages are struggling even before interest rates were raised, with 42% financially stressed in March, according to new research.
Australians are suffering from financial stress in greater numbers than at any time in the past 20 years, according to data from mortgage provider Joust and Digital Finance Analytics (DFA).
A total of 1.5 million households in Australia are currently in mortgage trouble, DFA said.
Interest rates could reach between 1 and 2% by the end of the year, experts say, while other scarier forecasts indicate that they could reach 2.5% or more by the end of the year. mid 2023.
Some of the big banks announced an increase of 0.25% in May, while other experts rose 0.4%.
An interest rate hike of just 0.5% would see more than 143,000 additional Australian households hit by mortgage stress, DFA found.
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If interest rates increased by 1%, nearly 322,000 more households would experience mortgage stress, while a 3% increase would cause 933,000 additional households in mortgage stress compared to current levels, the DFA said. .
Mortgage stress is defined by DFA as a household where occupants are either able to pay their mortgage under duress or are actually behind on their mortgage.
Data from the Australian Prudential Regulation Authority is more conservative.
This shows that 280,000 Australians are most exposed to rising rates, having borrowed six times or more their income and/or having loan-to-value ratios over 90%.
This is a million loans taken over the past two years, which the RBA says are most likely to tip over into mortgage stress with multiple rate hikes.
Areas most stressed by mortgages
Tasmanians are most likely to be under mortgage stress at 56% of households, while almost 500,000 Victorians face the same scenario, DFA found.
Queensland is the only state where less than 40% of households are experiencing mortgage stress across the country.
Nationally, an average of 37%, or nearly 274,000 households, were in mortgage trouble.
While the Reserve Bank of Australia’s (RBA) previous stance had been to keep interest rates on hold until 2023, data showed the cost of living hit a 22-year high of 5.1 % year over year in March.
That has left the RBA no choice but to hike rates multiple times this year, experts say, with the first hike expected for homeowners in 11 years.
Three major banks are planning to raise interest rates as of Tuesday.
KPMG senior economist Dr Sarah Hunter said many expected the first rate hike on Tuesday, but the RBA could still wait.
“There are still good reasons for the RBA to wait until June and raise the cash rate by 0.4% in response to sustained and widespread price increases,” she said.
“An increase in June would allow the RBA to act outside of the election campaign, and with the benefit of seeing the publication of the Wage Price Index in mid-May before deciding on the extent of the move. on the rise.”
In some of Australia’s major constituencies, a quarter of a million homebuyers in New South Wales and another 350,000 in Victoria will face their first-ever interest rate hike, including fringe seats such as La Trobe and McEwen in Melbourne, alongside Lindsay in Sydney and Pearce in Perth.
Four of the five electorates with the highest number of households in mortgage trouble are held by the Labor Party, the DFA found, including Brand’s seat in WA, Franklin in Tasmania, Hunter in NSW and Hawke in Victoria.
The other electorate is held by nationals of the seat of Capricornia in Queensland.
Independent economist Saul Eslake said the huge jump in inflation and the pressure it is putting on the Australian economy means the RBA is in a position where its credibility would be seriously threatened if it did not raise rates this week.
“If that doesn’t drive rates up, [the RBA] leaves itself wide open to the suggestion that the only reason it hasn’t raised rates is because of the impending federal election,” he said. The Guardian.
Meanwhile, a slowdown in the real estate market began to appear with falling prices across the country.