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Mortgage holders to ‘grit their teeth’ and absorb interest rate hikes

As interest rates look set to keep on rising, over five million Australians are likely to be impacted by the higher cost of living and could experience mortgage stress, according to data.

A new survey by Savvy has found that 26 per cent have cited mortgage repayments as a significant cost of living concern and may be worried about keeping up with mortgage repayments in the coming months.

The survey found 38 per cent of 25–34-year-olds and 35–44-year-olds said that mortgage repayment increases are a significant concern when it comes to their ability to keep up with the cost of living. 

Meanwhile, other age groups, particularly those over the age of 55, expressed a lower level of concern about mortgage repayments.

According to the survey, 43.86 per cent of mortgage holders spend between $251-$500 on repayments each week, while 23 per cent spend between $501-$750. 

A further 18 per cent claimed to pay $751 and over per week to cover their mortgage.

Savvy Managing Director & personal finance expert Bill Tsouvalas said the pandemic had drained the savings of many Australians who are now concerned about the future.

“If that 23 per cent who said they have mortgage repayments $500 to $750 per week were single income households, they would be in real trouble,” Mr  Tsouvalas said.

“The Covid mortgage holidays are over and for some families, there may not be much left in the tank when it comes to covering mortgage repayments.”

Mortgage stress as defined by the Australian Bureau of Statistics is a financial situation in which a homeowner or household is using more than 30 per cent of their after-tax income to keep up with mortgage repayments. 

Research firm Roy Morgan considers homeowners “at risk” of mortgage stress if they are spending between 25 per cent and 45 per cent of their income on their mortgage and at “extreme risk” if they are expending 45 per cent of their income on their home loan repayments. 

They estimated 584,000 mortgage holders were “at risk” at the end of 2021. 

When asked to choose their top three responses to mortgage repayment increases resulting from an interest rate rise, 53 per cent of respondents said they would try to cut down on other expenditures to prioritise their mortgage. 

The survey showed 28 per cent of mortgage holders will absorb the increase, while 26 per cent said they will simply grit their teeth and experience mortgage stress. 

Twenty per cent said they’re prepared to change lenders or refinance and 13 per cent will lock in a fixed rate with their current lender.

Mr Tsouvalas said there are still options for those struggling financially. 

“If you can refinance at a lower rate – lock it in now,” Mr Tsouvalas said. 

He noted 0.85 per cent is still a record low and urged home owners to refinance or fix their rate as a first priority.

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Rowan Crosby

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