With rising interest rates, a trend which is set to continue, more Australian homeowners are battling significantly increasing pressure on their home loan repayments, leaving them at greater risk of financial strain, according to new research released today by PEXA.
The Emerging Mortgage Risk report explores the impact of the current economic climate, namely continued rate hikes, steep house prices and continued cost of living pressure, on those who have recently purchased residential property – from January 2020 to February 2023.
As part of this study, “Mortgage Risk” is defined as how difficult it is for families within a given postcode to meet their home loan repayments, using the ABS definition of a family – two or more persons, one of whom is at least 15 years of age, who are related by blood, marriage (registered or de facto), adoption, step or fostering, and who are usually residents in the same household.
It is calculated by assessing the median monthly home loan repayments as a proportion of the median monthly family income for each postcode, before being categorised into low (0-20%), moderate (>20-40%), high (>40-60%) or very high (>60%) risk.
The report found those families in higher risk postcodes are being forced to dedicate a higher percentage of their income to meet their repayments – with families across both high and low income areas alike being affected.
New South Wales feeling the mortgage pinch
New South Wales is set to have 181 postcodes – nearly half of all suburbs in the state – classified as being at high mortgage risk by May 2023.
Number of postcodes with mortgage risk
The majority of the very high-risk postcodes in New South Wales were located in greater Sydney, led by Northbridge (2063), Dural (2158) and Avalon Beach (2107) – a trend which was also replicated in Victoria, which saw Balwyn (3103), Balwyn North (3104) and Canterbury (3126) top the mortgage risk charts.
Notably, this pattern was not seen in Queensland, where regional postcodes were more prominently recorded as being at high-risk – namely Noosaville (4566), Maleny (4552) and Tallebudgera (4228).
NSW postcodes with the highest mortgage risk: May 2023 vs December 2020
VIC postcodes with the highest mortgage risk: May 2023 vs December 2020
QLD postcodes with the highest mortgage risk: May 2023 vs December 2020
The income distributions of high-risk postcodes in New South Wales and Victoria were similar and encompassed both high and low income areas. Almost 40% were from the very high income postcodes, with around a quarter from low income group.
In contrast, Queensland’s higher risk postcodes skewed towards lower income areas, where 37% were low income postcodes and only 11% were very high income postcodes.
Postcodes with high mortgage risk were spread across a range of affordable and affluent postcodes
Australians forced to dig deeper into their pockets
Further illustrating the lending pain being experienced, in NSW, borrowers will require an extra $15,985 per year on average to meet their loan repayments, an increase of 62.3% from December 2020.
Victorian home owners will have to front up an additional $13,327 (up 67.3%) and Queenslanders will be hit to the tune of $11,567 (a 67.0% rise).
And while it is generally expected that families in higher income postcodes may be more insulated against potential mortgage risk, primarily through the likelihood of deeper savings, the size of their loans cannot be understated.
Repayments for those in Northbridge (2063) and Canterbury (3126) are projected to rise by more than $60,000 annually – sizeable sums irrespective of your financial security.
Median repayments: NSW, VIC and QLD
Median repayments in NSW
PEXA’s Head of Research, Mike Gill, said: “The Emerging Mortgage Risk report highlights the extent to which more and more borrowers in Australia are being challenged by the current economic conditions. With interest rates continuing to rise and the cost of living also squeezing the budgets of households, there has been a pronounced spike in the number of families facing more immediate mortgage risk.
“In addition to these factors, with an estimated 800,000 fixed rate loans due to expire during 2023 – and reset at a significantly higher cost – it’s easy to see why refinance volumes are at a record high as mortgagees seek to strike a better deal. It’s clear that lending pressure is set to stay in the months ahead.”