Homeowners in much of Sydney cannot afford their mortgages and would be in financial trouble if there was a rapid rise in interest rates.
That’s the finding of new economic modelling, which revealed two in five NSW mortgage holders were in “mortgage stress” – spending more on their repayments and living costs than they were earning.
The proportion of homeowners in mortgage stress was even higher in the tightly locked down southwest, according to the Digital Finance Analytics research commissioned by Fintech group True Savings.
Close to 89 per cent of homeowners in Campbelltown were paying down mortgages they couldn’t afford, while in the neighbouring Narellan and Mount Annan area it was 80 per cent.
In the heavily populated Liverpool region, mortgage stress rates were at about 77 per cent, or nearly 11,500 households – the highest in the country.
Mortgage stress was forcing many of these households to eat into their savings, rack up credit card debt or borrow from family and friends to make ends meet, the research showed.
True Savings director and former CBA digital chief Pete Steel said the financial position of the households in mortgage stress was unsustainable and they were “sinking” financially.
They were often struggling because their incomes dropped, especially during the pandemic, and many had only narrowly passed stringent credit assessment tests to get their loans in the first place, he said.
“Increasing prices are creating marginal aspirational purchasers,” Mr Steel said. “They end up paying with only a 5 per cent deposit or they lean on the bank of mum and dad, which banks can’t factor in.
“It’s also common for (people) to change to part-time work after they get the loan or, as we’ve seen in lockdown, their jobs are on hold or unemployment has risen.”
Rates would inevitably rise from their historic lows at some point and the risk was that struggling mortgage holders would default on their loans and banks would have to reclaim their debt, Mr Steel added.
Digital Finance Analytics analyst Martin North said recent homebuyers were particularly leveraged. “The average loan is about 15 per cent bigger than last year but incomes haven’t grown and the lockdowns are adding pressure, some workers would be losing hours at work,” he said.
Mr North said this surge in debt left recent homebuyers in a “precarious” position. “What happens when rates rise? Even now with rates lower than ever, more households are up against it. Even a small movement (in rates) will have a significant impact,” he said.
The Australian Banking Association would not comment on the research but a group spokesman said banks were required to undertake “rigorous” credit assessment before approving any loan.
A Commonwealth Bank spokesman said the financial group did not support the DFA findings, pointing to the 0.64 per cent arrears rate for CBA home loans in June, down from 0.68 per cent in June. Westpac would not comment.
Mr North said mortgage stress levels were not yet showing up in deferral or arrears data because struggling homeowners were often encouraged to sell before they fell behind on their repayments.
Mr Steel said some homeowners in mortgage stress could improve their situation simply by refinancing to a better rate.
Blacktown teacher Akram Zaki, whose wife is pregnant, said he realised it would be difficult paying his mortgage when the family dropped from two incomes to one and was relieved to find he’d save $8000 by refinancing.
“It’s pretty unstable times we’re in,” he said. “Blacktown has been severely impacted by lockdown and $8000 is a lot of money.”
POSTCODES WITH MOST UNAFFORDABLE MORTGAGES
By share of homeowners in mortgage stress
2560 Campbelltown 88.7%
2176 Bossley Park 87.8%
2770 Mount Druitt 88.3%
2761 Colebee 84.2%
2576 Mount Annan/Narellan/Harrington Park 79.2%
2170 Liverpool 77.2%
2171 West Hoxton 76.5%
2570 Camden 69.4%
Source: True Savings, Digital Finance Analytics