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69 per cent of homeowners won’t cope if interest rates rise again

More than two-thirds of borrowers won’t be able to pay the mortgage if interest rates rise again, according to a new survey.

On the back of 12 rate hikes, Canstar found that just 31 per cent of mortgage holders feel confident they can continue to make loan repayments if interest rates rise again.

The survey showed that 8 per cent of mortgage holders are stressed because they are already behind or struggling with keeping up with their loan repayments and can’t cope with another rate rise. 

While a further 19 per cent are worried that while they can likely continue to meet their repayments for now, they won’t be able to cope if rates were to rise further. 

Along with 42 per cent of mortgage holders who are probably okay to continue to make their repayments but will buckle if interest rates rise again. 

Canstar’s finance expert Steve Mickenbecker said if there is another rate rise there is good cause for community-wide concern, with lenders, government and borrowers likely to share the pain.

“Many borrowers feel they are on a cliff and will nervously await the Reserve Bank’s November cash rate decision, fearing that another rate rise will tip them over the edge,” Mr Mickenbecker said.

“If the September quarter inflation figure due to be released in late October shows a lack of progress towards 3 per cent, the Reserve Bank may be left with little option but to increase the cash rate.”

Mr Mickenbecker said borrowers who are already stressed are likely to find themselves excluded from refinancing into a lower interest rate loan because of the higher risk their loan now presents. 

“For other borrowers who are still in good shape, refinancing is the first line of defence for interest rate increases, and we are seeing record levels of borrowers switching lenders,” he said.

“In August, the value of loans refinanced to a new lender was 12.6 per cent higher than a year ago.

“There is nothing like increases to home loan repayments to drive borrowers to hunt down lower interest rates.”

Mr Mickenbecker said borrowers who refinance can potentially save around one-third of the repayment increases. 

“The savings should be too big to ignore but that is what many borrowers are doing,” he said.

“Even at the July record high rate of refinancing of $21.4 billion worth of loans, only around one per cent of the total value of home loans is being refinanced to a new lender.

“Refinancing to a new lender in August was down by 3.9 per cent from the prior month. Hopefully, this doesn’t signal the top of the refinance curve.” 

The four percentage point increase in the cash rate since April 2022 has seen the average variable rate for existing borrowers rise from 2.98 per cent to an estimated 6.98 per cent, following the most recent cash rate rise in June 2023.

This adds about $1217 to repayments on a $500,000 loan over 30 years or $2435 on a $1 million loan. 

Mr Mickenbecker said that borrowers feeling worried or stressed should speak to their lender.

“There are steps that borrowers already in stress can take,” he said. 

“Tracking money coming in and money going out of the household budget is a must at these times as there are savings available in the big bills, like insurance, phone, internet, loans and power, and in everyday spending.” 

He said there are short-term measures that can be undertaken with the help of the lender, like extending the term of the loan, moving to an interest only period or a repayment holiday. 

“However, it is important that borrowers talk to their lender and consider getting advice from the government’s National Debt Helpline,” he said.

“Measures should be treated as short term and borrowers should aim to reverse them voluntarily when they are back on their feet.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.