The Australian mortgage market in 2023 was dominated by one major storyline: the mortgage cliff.
With 800,000 borrowers rolling off historically low loans fixed during the pandemic, the ominous term became a household reference to the impending disaster that was about to occur.
Borrowers would face a financial shock when their rates reset to significantly higher levels, with many stuck in ‘mortgage prison’ – where borrowers are stuck with their lender because of their lowered borrowing capacity.
However, much of this didn’t eventuate despite the expected high levels of refinancing activity.
Some experts, including Steve Williams (pictured above left), director of Buyers Agent Perth, believe it was all media hype.
Others, like George Samios (pictured above right) from Queensland brokerage Madd Loans, think the true mortgage cliff is yet to come.
As recent data from Aussie Home Loans provides a state-by-state breakdown of the areas in which borrowers are currently most at risk of falling victim to the mortgage cliff, Australian Broker explores one of the trends that shaped the mortgage industry.
As many in the media industry can attest, journalists love a headline.
And the mortgage cliff certainly served up a juicy one, painting a picture of ‘financial armageddon’ for thousands of Australian homeowners. But was it all smoke and mirrors, a carefully constructed narrative for clicks and shares?
Williams said he spoke to people wanting to buy property every day about their fears and worries.
“ ‘Property prices are going to crash’, they say. This year I was often asked what I think would happen to property prices with the mortgage cliff.
“My response was, ‘it's all media hype’. And would share my reasoning backed by the figures. For example, of the $10 trillion value of Australian property, there is only $2 trillion in debt.”
Williams’ forecast was vindicated in October when the RBA said most borrowers that had rolled off fixed rates had managed to make their repayments and had sufficient income and savings to afford their mortgages moving forward.
“With arrears still below historical averages, it’s a good sign that it was a soft landing,” Williams said.
He said if the mortgage cliff had eventuated and people were forced to sell, it would have been felt differently in each state.
“For many parts of the country there are shortages of properties on the market, so the increased stock would have likely been absorbed by the huge demand from buyers,” Williams said. “Especially considering that new home construction is way short of what we need.”
While one could be thankful that the mortgage cliff didn’t have the expected impact, Williams said fear affected the market in other ways.
“I recall speaking to this one couple back in April who were considering buying an investment property in Perth but they had fears of the mortgage cliff and the 'blood bath' that it could cause with prices falling,” Williams said.
“Guess what has happened since April? Median property prices in Perth alone have grown by approximately 7.8%, according to Corelogic. They lost tens of thousands because of this fear.”
While some celebrate dodging the mortgage cliff, others like Madd Loans’ George Samios warn his clients that the worst is yet to come.
“Everyone reported that 2023 was the year for the mortgage cliff when it’s actually next year and the year after that for many,” Samios said.
“We have $180 million worth of loans coming off low fixed rates next year and $230 million the year after because those 1.99% rates were four- and five-year fixed rates,” Samios said, referencing data from Madd Loans’ mortgage books.
With the RBA tipped to lower rates over the second half of next year into 2025, Samios’ approach may save his clients from the worst of the mortgage cliff.
“I get SMS’s from people thanking me saying, thank God you fixed me,” Samios said.
However, that isn’t to say the RBA won’t have more rate hikes to come, with RBA governor Michele Bullock warning of another rise in early 2024.
Echoing Samios’ point, just because refinancing may have peaked in July, it doesn’t mean borrowers aren’t struggling with the effects of the mortgage cliff now.
Recent Aussie data takes a closer look at the state-by-state breakdown for households who were next in line to feel the pain of refinancing between October and the end of the year.
Here’s a breakdown of the top postcodes per state that will be affected the most by fixed rates ending in that timeframe:
30% of borrowers with fixed rates expiring by year-end face an average monthly increase of $1,708, with Western Sydney postcodes 2145 and 2747 most at risk.
Postcodes 3064 and 3977, including Craigieburn and Cranbourne, will see borrowers facing an average $1,421 monthly increase.
Homeowners in postcodes 4300 and 4209, encompassing Springfield, Goodna, Upper Coomera, and Pimpana, could see their repayments rise by $1,237 per month.
Postcodes 6210 and 6018, including Mandurah and Gwelup, face a potential monthly increase of $1,120.
Postcodes 5108 and 5114, including Salisbury and Smithfield, could see repayments rise by $1,108 per month.
Postcodes 2913 and 2617, including Franklin and Belconnen, face a potential increase of $1,395 per month.
Postcodes 7054 and 7010, including Barretta and Dowsing Point, could see repayments climb by $1,102 per month.
Postcodes 0810 and 0832, encompassing Lee Point and Bakewell, are most at risk, facing a potential monthly increase of $1,009.
Ultimately, the mortgage cliff may not have been the financial disaster it was painted to be, but the signs were there to suggest an incoming risk to borrowers.
While the mortgage industry has successfully navigated the worst of this risk, the lesson is still to be learned for some borrowers across the country rolling off low rates over the next couple of years.
