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Mortgage repayment shock: borrowers face steep hikes as fixed rates expire

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Australian borrowers are grappling with significant mortgage repayment hikes as fixed rates expire, according to Lendi Group. The data reveals that borrowers on an average mortgage are set to see their monthly repayments increase by a minimum of $1,000 every month, compared to before the Reserve Bank of Australia’s (RBA) tightening cycle.

The impact varies across states, with borrowers in New South Wales (NSW) being hit with the highest monthly increases at $1,708, followed by Victoria ($1,421), the Australian Capital Territory (ACT) ($1,395), and Queensland ($1,237). On a national basis, the average monthly repayment now sits at $3,865, up $1,387 when compared to repayments on a 2% interest rate, which now averages 6.27%.

However, Lendi Group revealed that around one in five (21%) of mortgagors are yet to roll off their low fixed-rate terms. State by state, NSW had the highest percentage of borrowers still on these fixed-rate terms at 22.7%, followed by Queensland at 22%, ACT at 21.35%, Northern Territory at 20.5%, and Tasmania at 17%.

The Reserve Bank’s decision to hold interest rates for a second month is welcome news; however, our data reveals, despite the hold, the vast majority of Australians are already living with enormous increases in their monthly repaymentsDave HYman

Lendi Group CEO and co-founder Dave Hyman stated that the repercussions of the fixed-rate cliff have already started impacting the economy. He said, “The Reserve Bank’s decision to hold interest rates for a second month is welcome news; however, our data reveals, despite the hold, the vast majority of Australians are already living with enormous increases in their monthly repayments.”

Hyman also warned that with interest rates unlikely to decrease soon, the clock is ticking for two in ten homeowners who are yet to bear the full brunt of the rate hikes. He expressed concern for single homeowners, families on low or single incomes, and investors holding more than one property, who are likely to feel more pain in the housing market.

Research conducted by Aussie Home Loans found that 29% of homeowners are struggling to meet repayments, and 23% are using more than 50% of their total household income to service their mortgages.

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As fixed-rate loans from the pandemic era began to roll off in June 2023, recent data from the Australian Bureau of Statistics (ABS) found that new fixed-rate loan commitments recorded a 70.8% increase in the same month. Despite this surge, fixed-rate loan commitments still remained below the $26 billion recorded in June 2021 when interest rates sat at emergency levels of 0.1%.

The RBA’s aggressive tightening cycle, which saw the official cash rate rise by 400 basis points, likely led to borrowers locking into higher rates above 6% as economic conditions remained uncertain. However, the RBA has held the cash rate steady for two consecutive months, following August’s pause, suggesting that the peak in interest rates could be on the horizon.

The findings from Lendi Group paint a concerning picture for many Australian homeowners, particularly those who are yet to experience the full impact of the rate hikes. The situation underscores the importance of careful financial planning and awareness of potential rate changes, especially for those on fixed-rate terms. The data also highlights the broader economic implications of the RBA’s monetary policy decisions and the delicate balance that must be struck to ensure both stability and growth in the housing market.

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