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Rising interest rates lead to poor mental health and increased stress

The impact of rising interest rates is taking a huge toll on borrowers, with 75 per cent of mortgage holders negatively impacted in their personal lives.

According to finance platform MNY, almost one in two (49 per cent) Australians have reported heightened stress and anxiety as the cost of servicing their mortgage rises.

While 29 per cent said they had mental health issues or sleeplessness.

The data also revealed that 8 per cent of mortgage holders have worse relationships with family and 11 per cent have worse relationships with their partner over the financial impact of rate rises. 

Only 25 per cent of borrowers reported having no adverse impacts from higher interest rates.

Impact of rising interest rates – Source: MNY

MNY Business Analyst Sabina Khanusiak said while borrowers had faced higher interest rates in previous decades, house prices and, consequently, loans were smaller, putting the current generation under far more financial stress.

“In 2021, when interest rates were at a record low, more than $305 billion was borrowed to buy or renovate homes in the first 10 months,” Ms Khanusiak said.

“These borrowers have significant financial strain if they are on, or are about to go on, variable-rate loans.

“When we analysed the pool of respondents who were impacted, almost two-thirds (65 per cent) are living with increased stress and anxiety, suggesting that rate rises have given borrowers very little disposable income. 

“It is impacting all areas of their lives and it is becoming a social issue as much as a financial one.” 

The survey also found that younger Australian borrowers faired worse than older generations.

More than 80 per cent of 18 to 34-year-old borrowers admit their mental health or relationships have been affected, along with heightened stress and anxiety (49 per cent), as a result of rate hikes. 

In comparison, 78 per cent of 35 to 54-year-olds are impacted in some way. 

More than half (54 per cent) have higher levels of stress and anxiety, followed by 35 per cent experiencing strain on their mental health, and 33 per cent suffering sleeplessness.

The data showed that the older age groups were least affected by rising rates, with two-thirds of over-55s impacted, mostly by heightened levels of stress and anxiety.

Ms Khanusiak said the amount of stress young Australians faced due to the increase in interest rates was worrying, especially since many are new to borrowing. 

“This current economic climate provides no encouragement or reason to buy property, leading to a rental crisis that is causing stress and anxiety for renters alike,” she said.

“These are uncertain times for Australians who are struggling to secure and retain a place to live.”

Of the 1000 homeowners surveyed, 75 per cent also said they had lost faith in the Reserve Bank of Australia (RBA), and won’t trust their interest rate forecasts again.

The impact of rising interest rates has been compounded by the fact the RBA said they would not increase the official cash rate until at least 2024.

Since then, the RBA has increased the cash rate 12 times – to 4.1 per cent by June 2023 – the highest level since 2011.

The data found that older Australians were least likely to place their trust in the RBA, with only 21 per cent indicating they would.   

“The RBA has a significant challenge ahead, as keeping interest rates unchanged does not alleviate the financial strain felt by homeowners,” Ms Khanusiak said.

Michele Bullock, the RBA’s new Governor, needs to regain the trust of 75 per cent of the mortgagor population and help ease the financial burden that a significant portion is experiencing.”

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Rowan Crosby

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