This won’t break the market, but it is something to watch.
The ABC was running a story last week that was a mixture of substance and hype.
It reckons that over the coming 18-months, a million Aussie households will face a ‘significant financial shock’.
This is the fixed-rate reset. People who borrowed at super low fixed rates during the pandemic will be switched over onto to variable loans that will soon approach 7% after the steepest-ever increase in official interest rates:
That’s a substantial lift in mortgage payments that’s going to affect a substantial number of people.
By the end of this calendar year, at least 880,000 fixed-rate mortgages will have expired, followed by another 450,000 in 2024.
The next chart shows the expiry schedule, with nearly 500,000 to expire over the second half of 2023 alone:
People are going to have to come up with a fair bit more each month, just as inflation eats into their disposable income, and the threat of another rate hike or two still hangs over the market.
It’s already taking a toll. The amount Australians spend on mortgage interest payments increased by 106% last year — more than double — before most consumers reached the fixed-loan cliff, according to the ABC.
Sebastian Watkins, co-founder of home loan company Lendi, told the ABC that the situation is “incredibly concerning”.
“I don’t think we talked about it enough, there’s going to be a severe amount of whiplash”, he said.
“It’s a substantial shift, you’re talking about some people paying 3 or 4 per cent more on their mortgage … overnight”.
“More properties have sold in June than any other month this year. So I think that’s talking to people that are dropping onto these higher rates, and just not being able to afford the loan”.
Financial councillor for the National Debt Helpline, Shae Robbins, said the clientele had changed from low-income earners and welfare recipients to “people who are in great jobs, they’ve got really good incomes, and now they’re struggling to just pay their mortgages and the everyday essentials”.
“They’re working full-time, but they’re still struggling”, she said.
Look, I’ve been through a few news cycles now, and I can tell you that hardship stories like this come around every time rates go up.
Some retirees in Western Sydney can’t make his mortgage payments and now he’s eating dogfood.
For the ABC, it’s a go-to staple.
So there is a bit of hype here, and the experts that I follow are watching it, but aren’t massively concerned at this stage.
That said, there is something substantial here. CBA reckon that only about 60% of the recent hiking cycle has been passed through to the market, thanks to the insulation of fixed rates.
That means that the RBA can do nothing, and there’s still a substantial amount of tightening to come.
Which is also why they SHOULD do nothing. Inflation is easing, households are feeling the pinch, and there’s still more to come.
There’s no need to rush into more hikes. They should just chill and watch how the hiking-medicine takes effect.
That’s what they should do.
Whether they will do that is another matter.
JG.