Household budgets will be squeezed as increased mortgage costs outpace wage growth

“That’s probably all your household bills that you pay again,” Zahos said. “Imagine paying for all that twice? Because that’s what you’re doing now.

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“This means that households have to earn more or spend less. This corresponds to an additional 29 hours [of waged work] per month to compensate for this repayment arrears.”

Zahos said the rate hikes are also bad news for those looking to buy, noting that a sole earner with an average net wage of $71,000 can no longer afford a $500,000 loan.

“They would pay 52 percent of their income to service that loan,” she said.

Moody’s expected housing affordability to remain poor in 2023. While incomes would likely rise given the current low level of unemployment, the rate of income growth would remain low compared to the pace of interest rate hikes and inflation.

Red Maple Finance Director and mortgage broker Nariman Amalsadiwala said his clients in Melbourne’s western suburbs were suffering as interest rates continued to rise.

“If you’re an average budget-managing household, how do you find that extra $1000-$2000 a month?” he said. “People will eat up their savings. Some… will have a bit of stress.

“We might even see some investors selling investment properties when they just can’t take it.”

Amalsadiwala said his clients hoped rate hikes would soon stop or pause, as Reserve Bank Governor Philip Lowe had indicated.

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“People take it as it comes, but obviously they’re not happy about the whole thing,” Amalsadiwala said.

“The question always comes up, ‘How many more? [rises are to come] and when will interest rates go down?’”

ANZ Senior Economist Felicity Emmett said the rate hikes have worsened affordability for both prospective and existing homeowners.

“The crowd that [buyers] can has been significantly reduced,” she said. “It will result in some people being priced out of the market.

Some borrowers were already having a tough time as their mortgage payments surged.

Emmett expected rate hikes to slow or pause soon due to a sharp slowdown in economic activity.

“The idea behind higher interest rates is that they slow down demand, and we’re starting to see that impact,” she said. “We’ve seen overall household consumption growth slowing down quite a bit in the last quarter.

“That’s one of the reasons Governor Lowe may be able to break rate-hike cycles in the coming months.”