Why homeowners in Australia shouldn’t worry about interest rate increases & housing prices.


Are you a homeowner feeling the pinch of recent interest rate increases? Do you worry about being forced to sell your property? According to experts, most homeowners will weather the storm, and those who do sell may still get a good price in the current market. Keep reading to find out why.

Homeowners manage higher interest rates well

Despite 10 consecutive interest rate rises over the past year, the current level of interest rates is still below the stress point for most mortgage holders. According to a survey conducted by McCrindle Research, 50% of mortgage holders have experienced increased stress, but the majority are managing higher repayments quite well. They are cutting back on leisure and social activities, taking on additional work, or renting out a room to generate extra income. Homeowners have large savings buffers built up through the pandemic, and unemployment remains very low.

If you're a homeowner feeling the pinch of higher interest rates, there are a few things you can do to ease the burden. Consider refinancing your mortgage to a lower interest rate, which can save you thousands of dollars over the life of your loan. You can also talk to your lender about extending the loan term to reduce your monthly repayments or switching to an interest-only loan temporarily to give yourself some breathing room. If you're struggling to make ends meet, don't be afraid to seek assistance from a financial counselor or advisor.

Low listings and increased demand support housing prices

The lack of motivated sellers is likely a key factor that has supported housing prices, especially with the surge in demand from overseas migration and an extremely tight rental situation. CoreLogic's home-value index for April shows that Sydney house prices increased by 1.3 percent during the month (April 2023), and Melbourne, Brisbane, Adelaide, and Perth have also moved to the recovery phase of the cycle after bottoming out in the past two months.

If you're in the market for a new home, be prepared to act quickly and decisively. With low listings and high demand, properties are selling fast and competition is fierce. Consider getting pre-approved for a mortgage so you can move quickly when you find the right property. It's also a good idea to have your finances in order and be prepared to make a strong offer. Don't forget to factor in additional costs such as stamp duty and legal fees when budgeting for your new home.

Widespread mortgage default unlikely

The portion of borrowers falling behind on their mortgage repayments, which generally trigger distressed selling, remains low at just 0.4 percent of all loans based on APRA data. In order for a widespread mortgage default to occur, unemployment will have to rise to around 5 percent. Currently, Australia's unemployment rate is at a near-five-decade low of 3.5 percent, so we're a long way away from this scenario. Even if homeowners are forced to sell, they would likely get a good price in the current market due to a shortage of listings and strong competition.

If you're concerned about falling behind on your mortgage repayments, there are several steps you can take to protect yourself. Make sure you have adequate insurance coverage, including income protection insurance in case of job loss or illness. Consider creating a budget to help you manage your finances, and prioritize your mortgage repayments over other expenses. If you're struggling to make ends meet, talk to your lender about your options before you fall behind on your repayments. Remember, a default on your mortgage can have serious consequences for your credit score and future borrowing opportunities.


Final thoughts:

Homeowners in Australia have largely managed the recent interest rate increases, and the housing downturn reversed faster and earlier than expected. Low listings and increased demand support housing prices, while a widespread mortgage default is unlikely. If you're a homeowner feeling the pinch, take comfort in knowing that most mortgage holders are managing well and that even if you have to sell, you may still get a good price in the current market.

Overall, if you're a homeowner in Australia, it's important to stay informed about the state of the housing market and the economy. Keep an eye on interest rates and economic indicators, and be prepared to adapt if conditions change. With the right approach and a little bit of luck, you can weather the storm and come out ahead in the current market.