Just last month, the Reserve Bank of Australia (RBA) lifted the cash rate by 25 basis points, bringing it to 3.1% - and, already, some households have started missing their repayments.
This is according to mortgage broker Gracious Chidhakwa, who also warned that the full effect of the rate hikes would not be felt for some time yet.
“We are now seeing some missing their repayments, some are coming back to us saying, ’look, can we refinance as soon as possible,’ or some are having to sell because they may not be able to afford that property anymore,” Chidhakwa told ABC.
She said the combination of low rental vacancies and higher interest rates was pushing up rental prices due to landlords passing on interest rate rises to their renters.
“Those who are wanting mortgages, some are having to sell, some are having to downsize, some are having to make those hard calls,” Chidhakwa said. “Some are having to make some significant cuts, [whether] that’s stopping their children from going to private schooling, putting their children back into public schools just to make ends meet.”
Ali Kawser, mortgage broker and owner of Victoria-based AK Home Loans, said some aspiring homeowners who secured house and land packages last year no longer wanted to proceed.
“Most of them are first home buyers, they are not investors yet, so they didn’t have mortgage stress but the current rate stress… because of that, they are not getting in the market at the moment, or very few of them are getting in,” Kawser told ABC. “They don’t know about the future… whatever plans they had… it’s all cancelled. Twelve months ago, we told them everything is fine, yes you can borrow that much and everything will be fine, we’re happy, but 12 months later we are apologising to them.”
The cost-of-living crisis and surging interest rates were hitting most people hard, said Grace Mugabe, founder and chief executive of Financially Empowered, adding that culturally and linguistically diverse (CALD) Australians and migrants were particularly impacted. Some families also had to send money to relatives in their country of origin, adding to their pressure, Mugabe said.
“So, when things are rising here, that means they need to be spending more money, for survival, but unfortunately they also need to be able to support their families overseas,” she told ABC.
Mugabe said some prospective home buyers who relied on assurances that interest rates would not increase until next year were now struggling.
“A lot more people from the CALD community are seeking financial counselling,” she said.
According to experts, up to 80% of households in some of Melbourne’s most multicultural postcodes were struggling financially mid-last year – well before the OCR hit its current mark.
Mugabe said the number of people attending her budget management workshops had increased recently.
Aside from reaching out to their bank, she said people in financial distress should also access important tips on how to better manage their budgets from Financial Counselling Australia and MoneySmart.gov.au.
“But there is a lot more that needs to be done in terms of translating this information from English into various languages,” Mugabe said.
For those suffering rent stress, Mugabe suggested sharing the dwelling with someone else and splitting the costs.
Chidhakwa urged those struggling to meet their mortgage repayments to speak to their mortgage broker, so they could revisit the loan and search for better deals.
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