RBA interest rate hikes continue to put pressure on borrowers. (Source: Getty/AAP)
More than half a million Australian mortgage holders have switched to interest-only repayments to ease budget pressures, with the Reserve Bank of Australia's (RBA) sharp interest rate hikes increasing monthly repayments by thousands of dollars and leaving many struggling to make payments.
Finder's research found that one in five mortgage holders, or 693,000 people, have switched their mortgage to interest-only payments in the past two years, while a further one in eight said they had extended their loan term in the past 12 months to reduce their repayments.
The survey found that 6% of the 1,062 people surveyed were still paying only the minimum as a “last resort” to avoid falling behind on their repayments.
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Finder mortgage expert Richard Whitten said millions of Australian households were currently in “survival mode”.
“A very large portion of people's income was going towards mortgage payments and excess cash was disappearing,” Whitten said.
“The rising cost of living is leaving an increasing number of Australians struggling to make mortgage payments and unable to continue living the way they do.”
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Recent APRA data shows the proportion of mortgages that are 30 to 89 days overdue has risen to 0.66% – but on average this is still below the 0.73% recorded in the 12-month period pre-COVID.
ANZ and NAB recently pushed back their expectations for the first rate cut by the RBA to mid-2025. ANZ now sees the first rate cut coming in February 2025, while NAB sees it coming in May 2025.
Economists at CBA and Westpac are more optimistic and still believe the RBA will bring interest rate cuts earlier than expected, to November 2024.
Financial markets are seeing a one-in-three chance that the Reserve Bank of Australia will raise interest rates when it meets in August. On a $750,000 mortgage, a further 0.25% increase in interest rates would mean an extra $112 increase in repayments, for a total increase of $1,927 since interest rates began to rise.
The story continues
New home loans hit record high
As real estate prices continue to soar, the average new homeowner mortgage hit a record high, with the average borrower owing $626,055 in May.
This is the highest level on Australian Bureau of Statistics (ABS) records, even though cash rates are still at their highest in more than a decade.
New South Wales has the highest average mortgage amount at $767,584, followed by Victoria at $601,891 and Queensland at $586,627.
Sally Tindall, research director at RateCity, said the data was “alarming”, especially given that the average interest rate on a new mortgage is 6.27%.
“Over the past two years, as a result of interest rate hikes by the RBA, the maximum amount buyers could borrow has plummeted, in some cases by hundreds of thousands of dollars, yet average new loan sizes have reached record highs,” Mr Tindall said.
Borrowers struggling to make repayments are being urged to ask their banks for financial hardship assistance.
If you feel overwhelmed by financial stress and need help coping, the National Debt Helpline is available for free advice and counselling. Call 1800 007 007 between 9.30am and 4.30pm Monday to Friday or contact Mob Strong Debt Help on 1800 808 488.
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