Reserve Bank rate hikes weigh on Sydney home borrowers and early home hopefuls

The Reserve Bank raised interest rates to an 11-year high of 3.6 percent on Tuesday, leaving borrowers facing a 50 percent surge in mortgage payments since rate hikes began.

Ten straight rate hikes have pushed monthly mortgage payments on a $1 million home loan to about $6,300 — an increase of about $2,100, or 50 percent, since last April, Canstar models show. For a $500,000 loan, repayments have increased by more than $1,000 over the same period.

Westpac’s chief economist Matthew Hassan expects more pain for borrowers and predicts that two more back-to-back rate hikes in April and May would be needed to deal with the country’s “inflationary emergency”.

“It’s going to be a very challenging year for the Mortgage Belt,” Hassan said. “You will face a very severe stress test.”

However, he didn’t expect a rush of home foreclosures when mortgage rates rise.

“Homeowners are still in good shape because many have a good buffer of accumulated savings [from the pandemic]’ Hassan said. “Lenders have a variety of tools that homeowners can use to manage stress when it arises.”

While the Sydney property market stabilized last month – with values ​​up 0.3 per cent and an auction clearance rate of 69 per cent – it is too early to say whether prices will improve, Hassan said.

He expects prices to fall 16 percent nationwide, while other leading economists expect a 15 to 20 percent drop. Property values ​​in Sydney have already fallen 13.4 percent since peaking in January 2022, according to CoreLogic figures.

The maximum borrowing capacity for an average earner — to $94,000 a year — has fallen about 27 percent since April, more Canstar modeling shows reveal.

The top affordable credit limit has dropped $157,000 to $426,000 for a single person and $360,000 to $979,000 for a couple.

Equilibria Finance chief executive Anthony Landahl said there has recently been a shift in sentiment among his clients.

“There has been a lot more concern from existing customers who are starting to look at what they can do. Will that change? [banks]how to change their household budget…discuss what happens when they leave fixed rates and have discussions about it [mortgage] repayment breaks, [for those who] may have been affected by job loss or illness,” he said.

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“[People are] They’re really starting to feel the cost of living pressures, the inflationary pressures…they’re starting to really worry about the speed of the [rate] is increasing and what impact it is having.”

Some clients reduced gym memberships, streaming services and restaurants, while others took more drastic action, like selling a property, though these were mostly investors and second-home owners, Landahl said.