Rural financial support services in New South Wales say they are “bracing for an avalanche of people” in mortgage stress as loans move from fixed rate to variable repayments this year.

The senior financial counsellor at Anglicare Riverina, Chris Heckenberg, said he had already noticed an increase in clients reporting mortgage stress after nine consecutive interest rate rises. But he described this period as “the lull before the storm”.

“We’re sort of bracing ourselves for an avalanche of people coming to us in mortgage stress,” Heckenberg said.

“Many people’s interest-only loans are coming to an end in the next month or two, and they’re about to revert to variable [rates] … that’s the sort of disaster waiting to happen.”

About 35% of outstanding housing credit is on fixed-rate terms, according to the RBA financial stability review, with two-thirds of these loans due to switch to variable rates by the end of 2023.

The senior economist for REA Group, Eleanor Creagh, said the problem was acute among people who purchased property during the pandemic boom.

“There are a significant number of borrowers whose record-low fixed rates, secured during the pandemic, will expire this year,” she said.

“The significant adjustment in mortgage servicing costs will see many households making budgetary adjustments, no doubt for many a challenging period with cost-of-living pressures biting elsewhere ... it’s only a matter of time before spending starts to slow more markedly.”

Creagh said it would be “a big step change in repayments” for borrowers but may be “countered to a degree by large savings made throughout the cheap fixed period”.

Heckenberg, who has 30 years of experience as a financial counsellor, said the “sheer size of people’s mortgages” meant even a small rate increase “can have devastating flow-on effects”.

“So that’s why we are afraid, we’re afraid for our clients and how they are going to manage this,” he said.

In Wagga Wagga, where Heckenberg is based, the median house price increased by 26.5% in the 12 months to January 2023, and was now $660,500.

A homeowner in Wagga Wagga, who wished to remain anonymous, said the interest rate hikes had increased the repayments for a $300,000 mortgage by $300 a fortnight.

The RBA said last week that Australians could expect to see at least two more interest rate rises, after it lifted its official cash rate to 3.35% – the highest level in just over a decade.

The National Australia Bank has predicted a further three rate hikes in the next three months, taking the cash rate to a peak of 4.1% by May.

Analysts RateCity say if the NAB forecast is realised, the cost of repayments on a $500,000 mortgage will have increased by 49% – or $1,135 a month – since the cash rate was first increased in May 2022.

Heckenberg said many of his clients experiencing mortgage stress were young people or families who bought their first home during the low-interest period, often with a deposit of just 10 to 15%.

“A lot of people just really extended themselves so thinly to get into the housing market, they could barely afford the interest rates [at the time],” he said. “They’re the ones that are going to be hit the hardest.”

Rising interest rates were also putting pressure on already very low vacancy rates in regional New South Wales.

The vacancy rate for rental properties in the Riverina town of Deniliquin was “close to zero”, according to real estate agents who spoke to Guardian Australia.

The Big River Real Estate director and principal licensee, Angela Carmichael, said the availability of rentals has not kept up with the demand.

“We are currently under 1%,” she said. “If we haven’t got the housing to offer then vacancy rates are going to stay where they are currently and that’s a scary place.”

The Ray White Deniliquin director and principal licensee, Hamish Thomson, said their vacancy rate was about 0.5%.

“We have not advertised a rental property for three years, and that’s because basically the supply is tight and demand is still quite large,” he said.

Thomson said the number of properties available to rent had declined due to more properties being owner-occupied.


Fleur Connick

The GuardianTramp

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