RBA drowns outer suburbs in mortgage debt
The Reserve Bank of Australia (RBA) has raised the official cash rate by 4.0% since May 2022, which is the sharpest monetary tightening in modern history:
This aggressive monetary tightening has increased mortgage interest repayments by an unprecedented 121%, which would rise to 138.5% if the RBA raises rates two more times, as predicted by some economists:
Source: Tarric Brooker
New research from S&P Global Ratings shows that borrowers in Sydney’s south-western suburbs, Perth’s north-west and Melbourne’s north-west are more than twice as likely to be behind on their mortgage payments by a month or more.
Mortgages that are more than 30 days late are highest in Sydney’s south-west, accounting for 2.5% of the total, followed by Perth’s north-west, Melbourne’s north-west, and the Blue Mountains.
This corresponds to where properties have been more inexpensive, attracting higher-leveraged first-time buyers:
S&P’s Erin Kitson believes the rate of unemployment would remain the biggest driver of risk for banks.
“The trends in the granular data are intuitive, but at the end of the day, the loss of income from unemployment is the key metric for mortgage arrears”, she said.
Recent research from CoreLogic’s head of research, Eliza Owen, showed outer-suburban mortgage belts in our major cities are the most exposed to the RBA’s aggressive rate hikes.
“The number of mortgaged, owner occupier households are generally highest in outer regions of major cities”, Owen noted.
“For markets in the capital city regions, there is an average distance to the city centre of about 34 km”.
The financial woes in these mortgage belt suburbs is only going to get worse.
In addition to possible further RBA interest rate hikes, the majority of low-interest fixed-rate home loans obtained during the pandemic are set to expire over the remainder of this year, exposing more households to rising repayments:
More worryingly, unemployment is forecast to rise, which is biggest determinant of mortgage arrears.
Because you can’t repay a mortgage if you don’t have a job.
