[[{“value”:”
Homeowners have become tied to debts they can no longer afford across much of Sydney and even a rate cut next week may not be enough to pull them back from the financial brink.
Alarming figures from Digital Finance Analytics showed the average mortgage holder in nearly a quarter of Sydney postcodes owed more than $1m on their loans.
Outstanding debt of more than $800,000 was the norm for mortgagors in about a third of the market.
This included middle-income areas or traditional “battler” suburbs where most of the homes traded more than a decade ago and many homeowners were nearing retirement.
Such a level of debt at current, high interest rates was chewing up an unsustainable amount of mortgage holders’ monthly income, leaving them in a vulnerable financial position, DFA noted.
MORE: Looming ‘threat’ if RBA fails to act
Mortgage holders Priya and Kev Harmalkar said the past year’s rate rises were a challenge. Picture: Jane Dempster
MORE: Home prices tumble in parts of Sydney, surge in others
There were also just 16 postcodes where the average amount of mortgage debt was less than $300,000 – nearly all of which were more than 50km from the Sydney CBD.
It comes as a recent survey by mortgage comparison group Finder.com.au revealed many homeowners were just months away from having to give up their properties due to financial duress.
Close to one in seven mortgage holders told the poll they would be forced to sell or seek hardship from their bank unless rates were cut by February. The Reserve Bank will next meet to discuss the possibility of a rate cut on Tuesday.
Digital Finance Analytics data scientist Martin North said the amount of debt homeowners had relative to their incomes was staggering in many areas.
MORE: Shock landlord payslips bust big housing myth
Scott and Kaitlin Cunningham, with their kids, recently refinanced their home to try claw out some savings.
MORE: Penny Wong splurges $3.4m on new home
“The amount of debt we compared to incomes makes us massive outliers compared to the rest of the developed world,” Mr North said.
“If we are still in the same boat in 12 months, with rates as high as they are, we will have households spending too much on servicing debt. That’s going to reduce momentum in the economy.”
Mr North said many homeowners had already given up and were selling their properties before they defaulted on their loans.
“It’s one of the reasons property listings have been rising so much of late. Banks are putting a lot of pressure on homeowners to sell if they are struggling.”
Source: DFA
The DFA data, used by hedge funds and other lending institutions, showed outstanding debts of over $1m were the norm for homeowners in 56 of the 239 Sydney postcodes with available data.
All homeowners with a home loan were included in the measurements – from recent buyers to those who had kept their properties for decades.
Suburbs where $1m-plus debts were the norm among mortgage holders included Marsfield, in the northwest, and inner west suburbs Petersham, Haberfield and Drummoyne, among others.
Homeowners had the biggest debts – over $3m, on average – in affluent coastal suburbs Double Bay, Bellevue Hill, Darling Point, Dover Heights and Mosman.
Mr North said homeowners in these up-market areas tended to have higher incomes relative to their debts, but some had still stretched themselves.
MORE: Bold moves that got Albo $8.8m property empire
Marsfield homeowners were among the most in-debted across Sydney.
“We’re seeing the consequences of 30 years of poor lending policy,” he said. “Holding on may no longer be the best strategy for a lot of homeowners. They need to sell.”
Homeowners told the Saturday Telegraph they were trying to stay positive.
Kev and Priya Harmalkar recently refinanced their Western Sydney home after realising they’d be paying substantially more when a fixed rate term on part of their loan expired this month.
The fixed portion of the loan had been at a lower rate secured in 2021 when interest rates were at record lows.
Mr Harmalkar said they would have done things differently when they bought their home three years ago if they had known how drastic interest rate rises would be.
MORE: Home trick nets dad extra $426k a year
An announcement of a rate cut by governor of the RBA Michele Bullock may not come in time to help some struggling homeowners. Picture: Martin Ollman
“We knew Covid was a special event and that rates would go up at some point, but there was no sign at the time they would go up as much as they have,” he said.
“If we’d known it would have changed our budget. The recent hikes of the last year have been challenging.”
Firefighter Scott Cunningham has also refinanced a home bought in 2021 to try and carve out some savings.
He said they were conservative with their buying budget but had been encouraged by RBA messaging at the time about rates likely being on hold until 2024.
“I would love to see a rate cut. I am no economist but it seems like it’s the homeowners who are getting punished more than anyone else.”
Many homeowners still had high debts to pay after being pushed at auction years ago. Picture: Tim Hunter.
Mortgage Choice Balmain broker Terri Unwin said a popular way for homeowners to cope with higher repayments was by extending their loans.
This often involved refinancing and starting a new 30-year loan term, but she said this was rarely a good idea.
“We have to constantly educate borrowers,” she said. “That option does mean you’ll pay much more interest over the life of the loan and a longer loan can be a big problem if you’re say, in your late-40s.”
The post Homeowners at risk as rates pain creates debt trap suburbs where $1m mortgages are the norm appeared first on realestate.com.au.
“}]]
