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Australian homeowners are feeling the pinch as surging interest rates put a significant strain on household budgets. The Reserve Bank of Australia (RBA) is expected to hold the cash rate at a 12-year high of 4.35% this week, doing little to alleviate the pressure on borrowers already struggling to manage their mortgage repayments.
Half of Income Going Towards Mortgages for Some Households
Since the RBA began raising rates in May 2022, mortgage repayments have skyrocketed, with a $600,000 loan seeing an increase of roughly $1,562 per month. While the Big Four banks anticipate a future rate cut, even a modest 0.25% decrease offers minimal relief for stressed borrowers.
Research from Canstar reveals a particularly concerning situation for couples who maxed out their borrowing capacity before the rate hikes. These households, with an average combined income of $184,060, are now dedicating a staggering 44% of their pre-tax income to mortgage repayments. This leaves a significantly smaller portion of their income to cover essential expenses like groceries, utilities, and insurance – all of which are also experiencing price increases.
“Even a single rate cut won’t be enough to pull stressed borrowers out of danger,” says Canstar finance expert Steve Mickenbecker. “Even with a 0.25% reduction, repayments are still estimated to devour around 43% of a couple’s income.”
Stressful Times for Borrowers: Seeking Help is Crucial
Mickenbecker highlights the precarious situation many borrowers face: “Those who stretched their borrowing to the limit right before the RBA started raising rates are now in a very difficult position. Lenders typically assess loan affordability with an additional 3% interest rate buffer built-in, but a 4.25% increase in 18 months is far outpacing wage growth, leaving stressed borrowers in uncharted territory.”
The article offers resources for struggling borrowers, encouraging them to contact their lenders for potential relief options or seek assistance from the National Debt Helpline.
Rising Costs and Mortgage Repayments Stress
The impact of rising interest rates extends beyond repayment burdens. Data from Finder reveals that affording a home in major Australian cities is becoming increasingly challenging. In Sydney, for example, prospective buyers now require an annual income of approximately $278,000 – more than double the amount needed in 2020. This significant rise outpaces wage growth, leaving many Australians priced out of the market.
With the number of Australians experiencing mortgage stress reaching an estimated 1.6 million (according to Roy Morgan), the situation underscores the urgent need for solutions to help alleviate pressure on households.
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