The deepest fall in house prices on record will not make housing more affordable as interest rates rise

RateCity research director Sally Tindall said potential buyers have already faced cuts in their borrowing.

For an average single earner paying $92,030 a year, with no dependents, no additional debt and minimal expenses, their creditworthiness has already fallen by $138,900 since April.

Buyers will still face affordability issues despite falling home prices.

Buyers will still face affordability issues despite falling home prices.Credit:Luis Enrique Ascui

Another affordability challenge this year will be that fixed rate homeowners face a mortgage cliff or higher repayments when their fixed term ends.

A homeowner who took out a $500,000 fixed-rate loan that expires in July would face an increase in repayments of $1,365 a month unless they renegotiate, RateCity analysis shows.

Those who borrowed $1 million are facing a surge in repayments of up to $2,722 a month beginning in July.

“The issue of housing affordability is really a double-edged sword,” Tindall said. “Basically, prices are going down, which is ultimately a good thing for prospective buyers.”

But falling house prices are a problem for homeowners looking to refinance, including those with a fixed rate that expires this year, she said.

Some are faced with the harsh reality that their home is worth less than what they paid for, making it difficult to qualify for another loan at a better interest rate.

Fixed rate homeowners should speak to a mortgage broker or bank to see if they can get a better deal after their fixed rate expires and make additional payments now to move forward, Tindall said.


Melbourne-based director and mortgage broker at 40Forty Finance, Will Unkles, said borrowers should expect increasing repayments.

Customers have already come forward to discuss options for the end of their fixed term, he said, and some are considering repairing their loans.

“Some clients are saying that because our mortgage is going to take 50 percent of everything, we need to cut our spending, and that’s a very tight position,” Unkles said.

“My best advice is two key points – make the numbers your projected repayments and then pay the loan as if it were that rate.

“Then it’s no shock when your rate jumps to that level and if you need a buffer then you won’t be on your knees,” he added. “If the payback is going to be too much, then try to sell towards the end of your fixed term and downsize to something more affordable.”

While housing affordability will be a challenge in 2023, ANZ senior economist Adelaide Timbrell said some relief may be on the horizon as she expects interest rates to be cut by the end of 2024.

ANZ forecasts that home prices across the country will have fallen 18 percent after interest rates peaked at 3.85 percent in May next year.

The cash rate could then be lowered to 2.5 percent by the end of 2024 by the Reserve Bank of Australia, Timbrell said.

“I don’t think interest rates will go down [the record lows] they were during COVID,” she said. The deepest fall in house prices on record will not make housing more affordable as interest rates rise

Brian Lowry

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