GC mortgage squeeze

THE Gold Coast’s struggling housing market will reach breaking-point mid-year as the “pincer” of renewed interest rate rises, plummeting property values and the spiking cost of living hits home.

The board of the Reserve Bank on Tuesday lifted the cash rate by 0.25 taking interest rates to 3.35 per cent.

Inflation is currently sitting at 7.8 per cent

It is the ninth time in the past year the rate has jumped, delivering another hammer blow to struggling Gold Coast households which are already facing financial pressure.

New data compiled by Melbourne-based firm Digital Finance Analytics (DFA) reveals the number of Gold Coast households facing mortgages stress has increased by nearly 1500 people since November, with 25,404 now struggling to make their repayments.

DFA boss Martin North, from DFA, said the financial situation for under-pressure households was deteriorating and would come to a head mid-year, with the Reserve Bank expected to deliver further rates rises in coming months.

“The middle of the year is going to be the most significant point for us because it is when we are going to see people who are already exposed to the market having to refinance once the fixed-rate mortgage periods conclude,” he said.

“Overall stress levels have gone up (over the summer) and the rates rises of late last year are now starting to hit as property prices continue to slide while the cost of mortgages go up.

“We are going to start seeing more property investors who are going to struggle and need to consider selling.

“This could be disastrous”. Monthly mortgage repayments are expected to skyrocket mid-year for thousands of homeowners who took out loans at fixed rates in the past two years while the cash rate sat at record lows, with the fixed period coming to an end.

Mortgage stress means homeowners are spending at least 30 per cent of their income on loans. Rental stress is defined the same way.

The postcodes with the highest proportion of struggling homeowners are 4216 and 4209, home to the expensive waterfront mega mansions of Sovereign Islands, Paradise Point and Runaway Bay, the rapidly growing suburbs of Coomera, Pimpama, Upper Coomera respectively.

Rounding out the top three was 4220, taking in the increasing exclusive beachside haven of Burleigh Heads and Miami.

Mr North said he expected interest rates to continue to rise through the first half of 2023 and would not likely begin to drop for “several years”.

“It’s all pulling in the wrong direction and if you look at the long-term mortgage rates, during the past decade a lot of people have had it really good artificially so, and we may never see interest rates that low ever again,” he said.

“Don’t’ put your head in the sand, because rates will likely stay high for years to come, so prepare for this situation to last at least a couple of years.

“Frankly I am sceptical that the RBA will cut rates at all this year.”

However, Colliers Gold Coast director Steven King was more bullish about the future, saying he expected the situation to turn around in the second half of 2023.

“It is not ideal for people to see interest rates going up the way they have, especially those who may have large mortgages,” he said.

“However, the increase is still well below the average over the last 30 years so it is not as grim as a lot of people are saying.

“While we do expect another couple of rate rises this year, we believe that inflation has peaked and that interest rates will begin to drop later this year or early next year and we are continuing to witness strong sales across all aspects of the property market from residential, industrial and commercial and many of these purchasers are generally not overly impacted by these incremental rate increase.”

Tuesday’s increase was the ninth consecutive month that interest rates have risen, with the 0.25 per cent hike in May the first such increase in 12 years.

They rose again by 0.5 per cent monthly through September, before slowing to 0.25 in October, November and December.

The RBA board did not meet in January.

Reserve Bank Governor Philip Lowe said global inflation remained “very high” and admitted the impact of the rates rises were yet to have their full impact on mortgages.

“The Board recognises that monetary policy operates with a lag and that the full effect of the cumulative increase in interest rates is yet to be felt in mortgage payments,” he said.

“There is uncertainty around the timing and extent of the expected slowdown in household spending.

“Some households have substantial savings buffers, but others are experiencing a painful squeeze on their budgets due to higher interest rates and the increase in the cost of living.”

Mr Lowe said he anticipated further interest rates rises.

“The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,” he said.

“In assessing how much further interest rates need to increase, the board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market.”

CBRE boss Mark Witheriff said families and young people hoping to get into the property market would be most affected.

“The biggest issue will be for families who have not made allowances for this or are experiencing changed circumstances,” he said.

“There is no question the current situation is making it harder for young people to get into the market, so they should take this time to get ready for a time when interest rates do start to drop once inflation gets caught up.

“However overall I am cautiously optimistic because unlike previous property cycles, we will still have a shortage of supply and there is a genuine demand for people looking for houses and units, particularly near the beach, as well as rental accommodation.”