Small rise a threat to homes
HUNDREDS of thousands home loan customers will be pushed to the brink if interest rates rise and will not cope with meeting larger repayments, alarming research has revealed.
Analysis from financial services firm Canstar quizzed more than 700 Australian borrowers and found about one in five mortgage customers (17 per cent) would not be able to afford a rate rise of 25 basis points when it happened.
This would add about $45 a month to repayments on a standard $300,000 30-year home loan.
Based on Australian Bureau of Statistics data, this means about 485,000 households would struggle to make ends meet if they were hit by a hike.
Canstar spokeswoman Belinda Williamson urged borrowers to do their utmost to scale ahead on loans in order to cope when repayment levels did rise.
“With the first Reserve Bank cash rate rise in more than seven years tipped to happen in 2018, anyone with a home loan who is feeling the pinch or thinks an extra $50 to $100 a month would be a stretch needs to act now,’’ Ms Williamson said. “The first step is to build a financial buffer into your repayment plan by cutting back on your spending.
“If you haven’t already, approach your bank for a better rate or consider switching in search of a better deal.”
The research found of those who say they will be able to cope with higher rates, 51 per cent say they can only afford a rise of between 25 basis points and one percentage point.
The Reserve Bank of Australia has kept the cash rate at 1.5 per cent since August last year, but industry experts say borrowers could be stung by cash rate hikes in 2018.
Home Loan Experts managing director Otto Dargan said the results were concerning given many interest rates deals were below 4 per cent.
“It’s a worry so many people are struggling with today’s interest rates or even a small increase,’’ Mr Dargan said.
“I’d encourage people who are struggling to cut back their expenses now rather than wait until it’s too late.”
He blamed an employment slump in the mining sector, high house prices and people’s financial habits.