Key Takeaways
- More than 270,000 landlords are struggling to refinance their fixed rate mortgage, which could lead to them having to sell their properties.
- Borrowers are able to access less money compared to a year ago, and bank stress tests require people to prove they can pay up to 8.5% in interest.
- Mortgage stress is defined as spending over 30% of pre-tax dollars on home loan repayments, and 47% of households are currently in mortgage stress.
- Rental stress is even higher, while investor stress is not as much of an issue due to negative gearing tax benefits.
- The average income earner in Australia would be in mortgage stress if trying to pay off a home loan on their own.
- The Bank of Mum and Dad is closing, with only 6,000 people helping their kids buy a property compared to almost 30,000 in March 2021.
- To avoid mortgage stress, consider buying a unit over a house, look at state and territory shared equity schemes, and try to earn more or spend less.
Data shows Australia landlords struggling to refinance their fixed rate mortgage
Data shows over 270,000 landlords in Australia are facing a difficult time trying to refinance their fixed rate mortgages. The issue is part of what experts have called an “interest rate cliff,” which has already begun to impact approximately 880,000 people with a fixed mortgage rate. Once their rate ends, their repayments will likely skyrocket, in some cases more than tripling.
Of the 880,000 people affected, 275,000 are investors and landlords. These individuals face the possibility of not being able to refinance their properties and may even have to sell their properties. This would undoubtedly have a flow-on effect in the rental market, as there would be fewer rentals available.
Experts have predicted that this problem will persist throughout the year, and it’s a grave concern for those in the industry.
Furthermore, borrowers have been facing significant difficulties compared to a year ago. A borrower with an average wage can borrow about $170,000 less, according to Rate City calculations. In other words, someone who could have borrowed $680,000 last year may only be able to borrow $510,000 today, depending on their circumstances.
This decline in borrowing capacity is due to the combination of rising interest rates and bank stress tests. Banks now require borrowers to prove that they can pay as much as 8.5% in interest, which is a substantial hurdle that many won’t be able to overcome.
What mortgage experts are predicting on property market:
Although Harry Trigger Boss, an Australian property expert, has predicted that the property market will boom in the near future, some experts believe that the current property price bounce is short-lived. Many are still predicting a 15% to 20% fall in property prices from top to bottom. This could make it even more challenging for first home buyers to enter the market.
Money experts have crunched the numbers and found that approximately 47% of households are in mortgage stress, with rental stress even higher. Investors, on the other hand, have not faced the same challenges due to tax benefits, such as negative gearing and higher earnings.
To avoid mortgage stress, individuals must earn more or spend less. One option is to consider purchasing a unit instead of a house, as the price difference is significant, with an almost $250,000 median price difference between a unit and a house in capital cities.
Shared equity schemes are also available in some states and territories, and the government is expected to release a help-to-buy scheme. However, the bank of mum and dad, which has been a source of financial support for many first-time buyers, is closing.
Ultimately, it’s essential to stay informed and avoid panic-buying. The property market is volatile, and while some predict a boom, others predict a significant fall in prices. It’s best to weigh your options carefully and make a well-informed decision that suits your financial circumstances.
