Dream sours ... the average mortgage repayment in NSW takes 27per cent of gross household income. Photo: Glenn HuntHome owners in NSW and Victoria teeter on the edge of mortgage stress as further rate rises threaten.
If interest rates rise any further, borrowers with only average-size mortgages in Sydney and Melbourne will be on the verge of ''mortgage stress''. A household is under mortgage stress once home loan repayments take up more than 30 per cent of gross income.
According to the minutes of the Reserve Bank's June monthly meeting, released last week, while the central bank's board decided to keep rates on hold for another month, members thought the economic outlook suggested ''further tightening in monetary policy would be necessary at some point''.
This was despite the minutes also noting that the housing market ''remained soft''.
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Economists expect one or two more rate rises during the remainder of this year.
Two rises totalling 0.5 of a percentage point would lift the average variable home loan rate with a Big Four bank from 7.17 per cent to 7.67 per cent, RateCity says. On a $300,000 mortgage, that's another $100 in repayments a month, on top of the $300-odd a month already added from rate rises since November last year.
RateCity chief executive Damian Smith says the size of the average mortgage has also been increasing in many states, leaving recent borrowers more vulnerable to mortgage stress.
In NSW, the average mortgage has risen 4 per cent to $319,900 since the start of the year. In Queensland, it has risen by 4 per cent to $280,300.
In the ACT, South Australia and Tasmania, the average mortgage is 6 per cent higher but at more modest prices of $282,400, $243,800 and $203,700 respectively. Western Australia is steady at $279,400.
In Victoria, the average mortgage has actually fallen 2 per cent but remains second highest at $285,700, while the Northern Territory is down 1 per cent to $274,600.
RateCity set the average mortgage in each state against the average income for that state to see who's most under stress and therefore, who faces the toughest outlook.
The researcher's calculations show that in NSW, repayments already require 27 per cent of the average household income - just under the definition of mortgage stress, which is repayments of more than 30 per cent of gross household income.
Victoria and South Australia follow on 25 per cent, Queensland and Tasmania on 24 per cent, Western Australia on 23 per cent, the Northern Territory on 22 per cent and the ACT on 19 per cent.
Two interest rate rises would push the average NSW borrower to the verge of mortgage stress, with repayments swallowing 29 per cent of income, Smith says.
Victorian borrowers wouldn't be far behind, with the average mortgage requiring 27 per cent of income in that event.
Queensland and South Australia would move to 26 per cent, Tasmania to 25 per cent, Western Australia to 24 per cent, the Northern Territory to 23 per cent and the ACT to 20 per cent.
''Given that these are averages, there will clearly be many households in NSW and Victoria paying well over 30 per cent of income to mortgage repayments, which is very worrying,'' Smith says.
Key points
- About 1.2 per cent of mortgage holders missed one or more payments in the six months to March 31.
- Some economists are predicting two official rate rises by the end of the year. That would put the average Sydney and Melbourne borrower on the verge of mortgage stress.
- Those who decide they must sell may have to contend with a buyers' market.
Read more: http://www.theage.com.au/money/borrowing/interest-rate-pressure-cooker-20110628-1gnwl.html#ixzz1QdlHJugL
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