Suburbs where homeowners are falling behind on mortgage payments as interest rates rise

The main reason for the default rates, Hasseldine said, was wages that have not been able to keep up with the rapidly rising cost of living and interest rates, while many households had simultaneously reduced COVID-era savings buffers.

“It puts a lot of pressure on everyone, but mostly it puts pressure on households that don’t have a monthly surplus of household income,” he said.

This includes households in regions with moderate to low socioeconomic status and households that took out a new home loan or refinanced to their maximum borrowing capacity during the COVID-19 pandemic, he said.

Those who took out a new loan or refinanced in the last two years have been stress tested to see if they could still repay loans if rates rise 3 percent and have used up that buffer as rates are already up increased by that amount, Hasseldine said.

Home equity borrowers have been busy refinancing to cope with rising interest rates, and the value of home refinance hit $19.1 billion in December, ABS figures showed, only the previous month’s all-time high.

“Inflation is still very high, so we expect further rate hikes that will add to the already existing financial pressures.

“We’ve been tracking consumer savings and found that although there was plenty of savings during the lockdown, savings for many people have run out and so it’s likely that future rate hikes will result in worsening repayments across the board. But it will be worst in households in middle to lower socioeconomic regions.”

He said younger Australians who bought their first home earlier in the pandemic would feel the pinch as would regional areas.

“The effects of climate can put pressure on regional budgets,” he said, adding that flood-prone regions would be hit the hardest.

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The fixed rate cliff is another factor that would drive up delinquency rates and leave no suburb immune to rising interest rates, he said.

AMP Capital’s chief economist, Shane Oliver, said it’s likely to be regional suburbs and suburbs that have the highest rates of mortgage arrears.

“The problem in these areas is that there has been a boom in first home purchases during the pandemic,” he said.

“The low deposit schemes allowed people to get in [to the property market] when they probably couldn’t, which is probably coming home to settle down now.”

Regional areas have lower income levels than cities and lower job security, making them a little more vulnerable, he said.

Insecure work and lower incomes meant some households lacked a savings buffer to protect them from rate hikes, Oliver said.

“People in suburbs, with higher and middle incomes, tend to be more financially secure, even if they have mortgages,” he said.

“They tend to have more stable income streams and larger savings buffers. The data suggests that the majority of these savings have occurred among older people with higher incomes.”

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Mortgage Choice Blaxland, Penrith and Glenmore Park director and broker Rob Lees said while he has yet to find a client with mortgage arrears, households across the board are deeply concerned.

“They’re worried and they don’t know how to do it. That’s the prevailing mood,” Lees said.

He agreed that the fixed rate cliff would test most mortgage holders.

“Some people go from rates of 1.99 percent to 6 percent,” he said. “If you have a million-dollar loan and you’re tied to 2 percent, the interest goes from $20,000 to $60,000 a year, that’s huge.”