Mortgage repayments to double for half a million Aussies

Fixed mortgage rates have already ratcheted up, as illustrated in the next chart from CoreLogic:

Australian mortgage rates

While not captured above, variable mortgage rates have also begun drifting higher following the RBA’s 0.25% hike in the cash rate earlier this month.

Steve Mickenbecker from financial comparison site Canstar has warned that around half a million Australians could face a doubling in mortgage repayments when their fixed terms expire over the next two years:

“The rates these people are going to face will rocket,” says Steve Mickenbecker at research group Canstar.

According to Mickenbecker, the collection of borrowers that is smack in the middle of this bubble going through the banking system were those who signed on between April 2020 and November last year: on his estimates, that is at least 500,000 mortgages.

“Half a million borrowers could be facing a doubling and more of their home loan interest rate overnight, as they reach the end of their fixed-rate period,” he says…

Mickenbecker… says the issue will emerge in an entirely predictably fashion three years after the fixed rate boom took off (in June 2020), which works out at midyear next year. It will reach at peak in August 2024.

CBA head of Australian economics, Gareth Aird, made similar warnings in February, estimating that $500 billion worth of fixed rate mortgages will refinance at higher rates over the next two years:

The fixed rate home loan expiry schedule means that over the next two years a very significant proportion of home loans will expire (see chart below for the CBA fixed rate loan book expiry profile). Based on CBA’s fixed rate home loan expiry schedule and share of the market there is likely to be around $A500bn of fixed rate mortgage loans expiring in Australia over the next two years.

Fixed loan refinancings

RateCity.com research director Sally Tindall also warned that “anyone coming off a fixed rate is going to be in for an almighty shock when they see what the banks have on offer”.

For Aussie households that stretched themselves to the limit at record low rates near the peak of the market, it will be a tough pill to swallow. Some of these households will be forced to sell, while others will be plunged into negative equity as house prices sink.

Unconventional Economist

Comments

    • 20% of US corporates are zombies that need to bust. Without the destruction cycle you just end up with the USSR.

  1. Camden HavenMEMBER

    It couldn’t happen in Turkey Egypt Argentina or Brazil so it definitely can’t happen here

  2. Interest rates should never have gone so low. Cheap money has caused people to over-borrow which in turns pushes prices up and doesn’t benefit society. Unfortunately a lot of newer borrowers have never experienced interest rates going up. It’s a mess, the truckloads of credit should never have been offered so cheap, it was never going to stay cheap.

    Buffet says, “When you mix leverage (debt) with ignorance, you get some interesting results” . As we’re going to find out.

    • happy valleyMEMBER

      Will backbone Phil stand up and take responsibility for the greatest housing price bubble and social divisiveness the country has ever seen and the annihilation of the fixed interest income of savers and retirees?

  3. Another bank predicts biggest house price fall since 1970s. New Zealand’s economy is “red-lining” and there is likely to be more pain to come, including significant house price declines, say economic updates released on Tuesday by both Westpac and Infometrics. Westpac increased its prediction to an inflation-adjusted house price fall of just over 20%,

    If all banks are now openly suggesting ‘20%’ perhaps the adjustment noted by the RBNZ recently of “48%, to get back to 2019 levels”, is not as improbable as it seemed.

    • Janet it’s going to be 50% min, probably 60% min as rates go through the roof
      The issue will be you won’t be able to even source funds
      The banking system will be government owned

      • Jumping jack flash

        Buying a house without needing debt?? Thats impossible!
        /sarc

        But it wont be sunshine and lollipops, demand will crater and there’s going to be a lot of inherently unproductive jobs (pretty much all of them) disappear along with all the wages that have been pumped up by debt spending.

        I dont think anyone has really thought this through and thought about what it actually means when the [entire Western] debt economy stops manufacturing new debt.

        Of course the existing debt still remains and demands interest be shovelled into its yawning maw.

        Everyones all like “woohoo, cheap houses! Lets go nuts”

    • That’s my take on it. But I’m a coward with my $120k loan. haha.

      I’m wondering how many people will be driving 10 year old beaters in future, given the equity mate has dried up. I think we will see less German luxury cars for people. Especially AUDI SUV’s.

      • A ten year old japanese car is good for however long you want to drive it, can certainly remember a time when vehicles were patched up and extended and pretended to keep them on the road. New cars everywhere is just an equity mate bubble thing.
        ps there will always be a market for black Audi SUVs while there are clan drug wars in Sydney…

        • RE: 10 year old cars, we have a Mazda 3 (2008) model. I plan to drive it into the dirt. Great car really, mum bought 1 new and my sister in law did also. They have not had major problems with it since new, which convinced me to get 1 for the missus. I’ve been tempted to get the missus a Forester Turbo or WRX sedan so at least I have a bit of fun when driving her car. But I have to remind myself that probably = trouble given turbo engines need more upkeep and more to go wrong and I can leave the Mazda 3 anywhere with no worries about theft.

          When I say 10 year old beater, it’s tongue in cheek firmly planted because most people seem to have brand new cars and trade them up every couple of years for the next newest thing. Where as I make do with old cars. But I also never buy on finance or via equity. I suspect most people are these days doing both. I just can’t see how they can afford new $80-$120k cars otherwise.

          • Fishing72MEMBER

            My parents are looking for an SUV in the <$10K market. Any suggestions for reliable vehicles?

          • Probably an old Forester non turbo. As non turbo’s they tend to be reliable and have minimal issues. The turbo engines have issues because of the boxer engine open deck design (in most of the non STi versions). And when the average enthusiast ups the boost pressure they tend to blow head gaskets etc..

            Having said that even the NA ones can have head gasket issues so if buying in the sub $10k range look at compression numbers and coolant issues (have a leak down test down by a mechanic). But otherwise should be alright. There is a reason you still see a lot of older ones around (often with high mileage). If you can find a lowish mileage example with good service history / garage kept it should serve them well for a number of years. I was looking to get 1 myself for a while, but found them a little uninspiring to drive. (but I’m a car guy), if you’re just looking for transport, sometimes bland is good when it comes to being reliable.

          • Charles MartinMEMBER

            +1 for the Forester.
            A friend of the family has one that is 10-15 years old and has 300k on it and it runs perfectly and never given them any trouble. Regularly serviced at the dealer and any potential issues fixed right away.

          • Fishing72MEMBER

            Thanks so much for the reply. That’s the direction I’ll try and steer them. Again…cheers.

          • drsmithyMEMBER

            It’s worth noting that the average vehicle age in Australia is about ten years, and has been pretty much forever.

            So while it might feel like everyone is driving around in new cars (and I know what you mean by that), the reality in the numbers is that they’re not (at least, any more so than they were in the past).

          • @DrSmithy.- probably part of that perception is due to the fact in the 90s old cars still had Chrome bumpers. (20 years of age). Where as in 2022, 20 year old cars have plastic bumpers. And so being able to tell which cars are older is probably a little more challenging today.

          • I just renewed the rego on my 2003 Subaru Forrester, Has over 300k on the clock but I get it serviced regularly and so far, touch wood, it’s been good. Previous owner did have some things done (new clutch etc) and I have to slide the window on the driver’s side down with my hand but yep, I’d recommend one.

          • Depends on where you live I guess, in my suburb the most common car is a 10-15 year old Commodore.

        • Ford Territory – hell no! Unless someone has fixed/replaced the rear diff rubber bushes with proper PU ones for you.

          Ford – fail or repair daily

    • Forget it, bond market drives int rates & inflation has peaked for now but it isn’t going away
      RBA can’t do anything to stop rates rising
      That’s how this all works
      Market drives rates

      • One trick ponyMEMBER

        If you are saying that bond markets drive FIXED mortgage rates I agree. But the RBA has a lot more control over variable mortgage rates via the cash rate (granted – they can not completely control variable mortgage rates and prevent out of cycle hikes etc in the absence of something like TFF 2). Add to that – fixed rates are largely a reflection of how shorter term rates are expected to evolve over the fixed period (plus/minus changing funding costs and in some cases an opportunistic fear premium added on by the banks). And I arrive at the same question I have asked on here before – how do you think we can have crashing asset prices/recession AND a continuation of rising rates at the same time. My view is we can have one or the other but not both, and that the more likely scenario for the cash rate in a recessionary scenario is that it finds its way back to zero fairly quickly. The only argument I’ve seen on here for both at the same time is that the RBA will be forced to follow the Fed regardless of domestic conditions . I disagree with that on the basis that I believe the RBA would choose a crashing AUD over making a recession even worse with ongoing rate hikes.

        • TRADINGtheAPOCALYPSE

          Crashing AUD and you’re importing inflation all the way down. Then new home builds gonna get even more expensive..

          • Jumping jack flash

            Dont forget that demand tanks, and along with it pretty much everything attached to it, like wages and jobs, in the services and imported retail items economy like ours, and pretty much every other western economy.

            Are wages going to hyperinflate to counter it? And if so where does that come from? Government printing (actual printing, not debt spending) spent as a UBI?

        • How so? I agree that the RBA doesn’t have full control but don’t know enough about the bonds. The bond vigilantes probably let the TFF through during the pandemic but if the rest of the developed world is increasing rates. If later on, with rates rising around the developed world, the RBA wants to hold rates back down again because of a LOCAL housing bubble popping, they will be less forgiving. Lowe learnt that lesson here (he technically could’ve bought more bonds to reduce the yield spike in Nov 2021 but knew it may have made the demand for yield worse and lost credibility):
          https://www.bloomberg.com/news/articles/2021-11-02/bond-tsunami-forces-australian-policy-switch-in-lesson-for-world

          Reading the above article, I don’t think the RBA have full control. Lowe didn’t WANT to drop YCC at that point but the market forced him to. And a few months later they forced him to increase the cash rate despite him saying for months they weren’t going up until 2024 (was saying this as recently as Feb 2022 IIRC). They also forced him to announce that the cash rate may hit what the 2 year bond was around the time he increased the cash rate in April (2.5%). Not a coincidence IMO.

  4. Zero sympathy for anyone stupid enough to buy during the pandemic. We need interest rate to reflect risk again. A world where you can speculate for free using other people’s money is the definition of stupid.

  5. This is going to end in tears
    & on top, add in petrol prices $2 + & general higher grocery prices, people will barely be able to do anything else

    Add on top owner occ land tax

    & just to let you know over the next several years we are going to have double digit home loan rates. Easy 10,11,12% in front

    House prices will continue to fall

    If the people on 1.99 fixed roll out to 4+.% fixed they’ll be rolling out into 8% then above 10%

    This is the Ponzi banking & financial system disintegrating

    Rates will stay low for ever, that’s what you all told me this time last year when I said we are going to 5%

    • It’s been fascinating to see how little helicopter money you need to stimulate inflation, whereas QE gets filtered strait into the pockets of existing asset owners in the form of increased asset prices.

      • Yep, can you imagine if QE went into the hands of the average punter. It would have done its job long ago. Instead it went to the rich to buy Yacht’s etc..so much for trickle down economics.

      • Because asset price inflation increase is “good” and wage increase inflation is “bad”.

    • boomengineeringMEMBER

      Met a guy at the beach the other day who had hundreds or employees in Aust and O/S. He said he had no dept and his accountant told him he was too conservative. He is going to the bank to borrow $M so he can sit on it until the crunch comes end of year then buy RE on the cheap.
      I told please be careful and no rush after anyhow. He’s going ahead anyhow. He is 50yo.

      • hareebaMEMBER

        Sounds like just another greedy qunt to me. People should only be allowed to own two properties max.

        • boomengineeringMEMBER

          Yep. I said that you should always keep emotion out of business and greed is an emotion. He said not greedy and just wants to give back to society as he has plenty. I still don’t know what he meant by that.
          Don’t know if he already has property or not.

          • elasticMEMBER

            I think he meant that he wanted to buy a house from a struggling FHB who couldn’t make their repayments so he could put a roof over a renter’s head.

      • I doubt someone with hundreds of employees no debt and an accountant who thinks he is too conservative who seems able to borrow millions needs advice from MB commenters

        Seems to have things under control

        As has been said many times there are a lottttt
        Of people with a lotttttt of cash or access to capital who will Hoover up houses

        • boomengineeringMEMBER

          On the other hand there were a lot of individuals with more employees and more cash pre 1989 that could have used some similar today’s advice from us here then before losing the lot. Remember under 50yo may have seen parents suffer but not self.

          • boomengineeringMEMBER

            Could be. My engineering brain people reading skills are non existent.

          • The only thing more inflated that housing prices is the MB puntariat’s opinion of their own wisdom. (I’ll now go back to polishing my monocle and finishing my afternoon brandy.)

    • Cash rate at 0.35%. Bit early for a lap of honor.

      Not that I will mind one bit if they do go to 10%. I just think the world will blow up before that happens and bonds will correct.
      Sure we have a mortgage, but so many will go under before we do that we don’t need to worry about it…so I’m not in denial.
      https://youtu.be/Ukz1oomcbcI?t=87

      • Given the debt load, rates will not get near 10% the wheels will fall off the wagon at 2.5% IMHO.

      • As inflation continues to get worse over the next 5 years, rates will keep rising
        All they have to solve any downturn is print more money that’s it & inflation will just get worse & worse
        We are in a long term bond bear market & a commodity super price boom that will last for many years.
        Mortgage rates were 8.5 to 9% in 2007
        We will easily get back there over time.

        Initially here 4 & 5 year fixed rates will fall a little but short end variable etc will rise

        Regardless what the RBA does funding costs will rise & even if government bond yields eventually fall, spreads will widen for the banks to fund their books
        Going to be very hard to borrow money over the next few years
        Don’t spend so much time focussing on RBA just watch global yields & spreads

    • Who was arguing that rates would stay near zero forever when it became clear global govts were unleashing fiscal bukkake? I’m sure there were some but on balance I don’t think the MB community believed any part of the COVID central bank or govt reaction was sustainable then let alone long term?

      Arguing that it becomes incrementally harder to push rates to previous levels once you have loaded the public and private sectors with increasing debt loads (i.e a lower neutral rate) is a long way from declaring zero rates forever, just as the market pricing a 3% terminal cash rate is a long long way from 10%.

      As mentioned before, victory lap on ice for now, as anyone who shorted the market (any market) on the basis of a similar thesis during the COVID sell off soon found out the hard way….

      • Cash rate doesn’t have to be 10%, that’s what you don’t get.
        If you are talking to me I don’t care about winning
        I said home loan rates were going up & you all said inc MB home loan rates were going negative
        Looks to me they are going up not down

      • Lol BBAU

        Sorry none of you said rates were going up when I first said home loan rates would rise
        Go back & have a look at the comments

        • Were those comments made around the same time that you were predicting Trump would beat Biden to win the election?

          • Trump did win, he had the election stolen by the left

            I also said iron ore is going to $300 & AUD into 80s & that’s over the next 6 to 12 months, that’s where we are headed.

            We are about to start the next leg up in the commodity super price boom

            And now all the clowns are saying interest rates are going up, all the ones who said a year ago rates were going to zero

            Interest rates are now on the way down – you guys all missed the boat when it left dock

            The fact is I got home loan rates right……that what’s the discussion is about & id have to say at the start of last year when I said home loan rates would increase up to actually these levels, I don’t think anyone was saying that
            All the numb nuts were listening to the RBA saying rates would stay at 2% for years ….. & all the other parrots just say what’s on TV

            Fixed rate home loans are heading back to 2% over the next year

            Who knows what RBA will do, I’m sure they will do a few hikes & tip everything upside down into a collapse

        • lol, mate you wont find any comment of mine re home loan rates likely going negative and that would have been a fringe view on MB as well.

          I did see lots of bear porn calls for the world to end, guns & gold, short everything, banks gone, property down 50% . What I do know for certain is anyone on that trade was subsequently obliterated. Might turn out to be true in the end? but ‘eventually right’ is not a luxury many have.

    • Jumping jack flash

      Dont forget that demand and jobs created by the debt spending will evaporate at an astounding rate.

    • Will you please stop teasing me – with 10% interest rates and 50% drop in house prices etc etc. I just can’t take it , I mean wait for it.

    • And/or refinance with the new loan tenure of 50+ years.
      Nobody wishes to see this precious big bubble looking flaccid.

    • Don’t worry about super over the next year 70% in super will be wiped
      Not only is the sharemarket going to collapse, I can tell you everyone will run to fixed income because their financial planner said fixed income is safe & over the next several years as interest rates rise to 10%, they’ll lose most of that
      Balance funds are low risk lol

      When rates rise fixed income (bonds) get crucified
      Going to be a painful lesson for many hiding in the balanced portfolio

  6. pfh007.comMEMBER

    No need to fear monger to persuade the RBA to keep the mutant private banking monetary model alive with low interest rates.

    Our RBA has only one mission and that is to keep our private banks fat dumb and happy with customer lining up out the door.

    The RBA is quite clear that protecting lazy incompetent banks is in the public interest.

    What would be helpful is arguing for reforms that make resuscitating this broken model of economic management unnecessary,