1/3 mortgagors unprepared for current interest rates, report finds

Financial comparator Canstar’s seventh Consumer Pulse Report has found that 34 per cent of home owners and 38 per cent of investors have said they are not prepared to maintain repayments at the current interest rate of 4.35 per cent.

Additionally, 60 per cent of home owners and 41 per cent of investors who aren’t prepared said they will need to cut back on living expenses in order to financially cope with the current interest rate level.

Other coping mechanisms for home owners included calling on family for help (19 per cent) and considering selling their home (18 per cent), while for investors, these coping mechanisms were considering selling their investment property (36 per cent), drawing money from other investments (27 per cent), or applying for hardship assistance from their lender (27 per cent).

Canstar’s finance specialist Steve Mickenbecker said it was “disturbing” to discover that over one-third of mortgagors indicated their unpreparedness in the lead-up to next year.

“Even more worrying is that borrowers who say they can’t afford repayments account for one in five of intended property sellers over the next two years,” Mr Mickenbecker said.

“This might provide some relief for property market undersupply, but not the relief we would welcome.”

He added that the pace of the Reserve Bank of Australia’s (RBA) interest rate hikes has “left many borrowers in shock” and the “deepest pain” is likely being felt by recent buyers with larger mortgages who have “no experience of this financial stress”.

“Most borrowers are in a reasonable financial state and refinancing continues to be an option,” he said.

“However, just 21 per cent have been able to successfully negotiate a better rate with their lender and only 9 per cent have switched lenders to chase a better deal. This leaves most borrowers in a situation where they likely haven’t taken action to cut their repayments.”

Indeed, the report also revealed that 20 per cent intended on moving lenders in pursuit of a better deal, while 14 per cent attempted to switch, but were unable to due to the lack of equity or not being able to meet new requirements by the lender.

Almost half of borrowers (49 per cent) do not intend on switching lenders, carrying the belief that they are on a good interest rate, it’s too difficult, or feeling that they will be rejected.

The RBA held interest rates at 4.35 per cent during its final monetary policy meeting for the year, however, the February 2024 meeting still runs the risk of another rate increase depending on the release of key indicators such as the December quarter Consumer Price Index (CPI) data.

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