Australians ‘doze off in disaster’ as rising interest rates threaten to put thousands into financial stress

The head of the Australian mortgage finance and brokerage agency warned that “Australians are falling into sleepwalking” as any increase in interest rate would plunge thousands of people into financial stress.

Peter White AM, chief executive of the Finance Brokers Association of Australia (FBAA), said recent research by McCrindle was a “wake-up call” that many borrowers may be living beyond their means.

Commissioned by the FBAA, the study showed that 66% of borrowers would be under pressure if interest rates increased and 57% would not be able to repay if their mortgage increased by $ 300 per month.

Australia’s real estate market has seen the fastest growing since the late 1980s, with experts warning that a rise in interest rates could have a profound impact on thousands of borrowers. (Pierre Rae)

“Many Australians are clearly on the brink of falling into sleepwalking, living in the false hope that rates will stay this low,” White said.

“This survey is a wake-up call and shows that even a small rate hike – which seems more likely next year with rising inflation – could spell disaster for our country.”

An industry veteran for more than 40 years, Mr White said it was possible Australians had become complacent after almost 11 years without seeing a rate hike.

“The housing market has skyrocketed and there is a reasonable chance that it will see a correction, meaning those with low deposits and struggling to make large repayments could end up with capital. own negatives, owing more than the value of the property, ”Mr. White said. noted.

“Add a mortgage increase that they can’t pay, and there could be a lot of people in trouble.”

Experts are now saying more and more that the market has turned to hard-trading buyers.
Such is the energy in the housing market that marked the busiest last weekend since March. (PAA)

Among those who said they would not be able to repay after a monthly increase of $ 300, there were households making between $ 2,000 and $ 3,000 per week, proving that mortgage stress was not only imminent. for low-income people.

“Where do these people go if they have to move away from their homes?” HLM, the street? He asked.

“The options for low-income people are slim and this will reverberate throughout our society, most likely due to the economic struggles of COVID. “

Almost every capital city in the country saw sellers earning well above the value of their property before COVID-19. (PAA)

Mr White called on the government to prevent lenders from raising lending floors and urged Australians not to take out mortgages that could see them pay off with payday loans, personal loans or credit cards .

Australia’s interest rates are currently at an all-time low of 0.1%, following multiple emergency cash rate cuts to boost the country’s economy during COVID-19.

Prolonged periods of estrangement from the housing market, combined with cash in workers and historically low interest rates, have contributed to what Mr. White described as an “overheated” housing market.

Low interest rates, low household spending, and the desire to change their lifestyle have prompted many people to buy or sell property.

Compare the Market digital banking expert David Ruddiman said the fear of missing out – dubbed FOMO – is a powerful motivator.

“Buyers have been scared off by forecasts that prices will continue to rise. In some ways, they are fulfilling the prophecy by making bigger bids than they usually would,” Mr. Ruddiman said.

“The numbers show that the fear factor has been crucial in driving trends, with 63% of respondents admitting to buying as quickly as possible to avoid a price spike.

“In view of the recent price hikes, this is a strategy that could have paid off with even greater capital gains. What is important is that people are prepared to face the shock of the hikes. potential rates and inflation in the future. “

Home values ​​in Australia are currently growing at the fastest annual rate since June 1989, having increased by 17.6% in the first nine months of 2021.

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