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At a time when many Tasmanian households are already suffering from mortgage stress, Australian interest rates are predicted to rise by more than 3 per cent by 2023, likely resulting in more homeowners struggling to make their repayments. The latest data analysis from Digital Financial Analysis (DFA) found that Launceston, including its suburbs of Riverside, Trevallyn, Newstead, Ravenswood and St Leonards, ranks sixth in Australia for mortgage distress. This stress occurs when households pay more than 30 percent of their income on mortgage repayments and is exacerbated by an increase in non-discretionary spending items such as food, fuel, interest and fees. Financial analyst Martin North of Digital Financial Analytics said that almost all households with a mortgage in the Launceston area experienced such stress. He said this was due to rising house prices and credit, which occurred at a time when household incomes were not rising. “There are certain pockets [in Australia] where households are in serious difficulties. A lot of them are in high-growth corridors where there’s a lot of construction or where a lot of people have recently bought off plan,” Mr North said. “First-time homebuyers or new migrants, with high mortgages and frankly, with fragile incomes.” Tasmanian economist says “prepare now” for weekly rate hikes of $100, $200 to avoid further stress, the state president told the Economic Society of Australia, Paul Blacklow, Mortgage holders should prepare for interest rates to rise by 2% and ultimately plan to rise 3% by the end of 2023. His advice comes at a time when the Commonwealth Bank of Australia is forecasting a 1.25 per cent rise in cash interest rates by early next year, up from the 0.1 per cent cash rate currently set by the Reserve Bank of Australia. dr Blacklow said a variable interest rate of three percent could easily increase to six percent, resulting in a substantially higher payment that’s 36 percent more than it used to be. For example, dr. Blacklow sa For example, a person with a $300,000 loan whose interest rate has increased from 3 percent to 6 percent would need an additional $117 per week, for a total payment of $444 per week. At the same time, a person with a $500,000 loan would pay an extra $200 per week, for a total payment of $741 per week. “Everyone needs to be prepared for interest rates to go up by 2-3% a year. There’s no harm in taking action now, putting money aside or increasing the variable rate, or slowly increasing your payments now so you don’t have to do it in the future,” said Dr. Blacklow. “If that [cash] With rate hikes coming in rapid succession, it’s going to have a pretty big impact on anyone with a mortgage, especially those with large mortgages,” he said, taking out mortgages of $500,000 or more to buy a new home goes a long way .” Difficulty repaying In October last year, Australia’s Prudential Regulation Authority (APRA) increased the amount by which banks must assess a borrower’s ability. It noted that banks must assess a new mortgagee’s ability to make loan repayments with an interest rate of at least 3 percent, which is above the standard 2.5 percent benchmark rate. 20 percent of new borrowers received loans that were more than six times their income, or one in five borrowers seemed to be indebted beyond their means . TG Financial Planner Tony Gray said there isn’t much room for this type of loan to deal with rising interest rates, especially when taxes and the cost of living rise. “There will be some people who, for many individual reasons, cannot make the loan repayments. They may have less work or be unable to work, they may have lost their job, they may be ill, or there may be a marital separation,” Mr Gray said. “If you’re unemployed and you have a loan on a home where interest rates have gone up, you could be in trouble,” he said. “But it’s not just rising interest rates that are causing problems. Non-discretionary spending goes up, and when they also have to spend more on mortgage payments, what’s left over shrinks. Which, for some people, means diving into buffers, and when they don’t have a buffer, they fall into arrears.”

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At a time when many Tasmanian households are already suffering from mortgage stress, Australian interest rates are predicted to rise by more than 3 per cent by 2023, likely resulting in more homeowners struggling to make their repayments.

The latest data analysis from Digital Financial Analysis (DFA) found that Launceston, including its suburbs of Riverside, Trevallyn, Newstead, Ravenswood and St Leonards, ranks sixth in Australia for mortgage distress.

This stress occurs when households pay more than 30 percent of their income on mortgage repayments and is exacerbated by an increase in non-discretionary spending items such as food, fuel, interest and fees.

If this [cash] Rate hikes in quick succession will have a pretty big impact on anyone with a mortgage, especially those with large mortgages

Economist Paul Blacklow

Financial analyst Martin North of Digital Financial Analytics said that almost all households with a mortgage in the Launceston area experienced such stress.

He said this was due to rising house prices and credit, which occurred at a time when household incomes were not rising.

“There are certain pockets [in Australia] where households are in serious difficulties. A lot of them are in high-growth corridors where there’s a lot of construction or where a lot of people have recently bought from plan,” North said.

“First-time homebuyers or recent migrants with large mortgages and frankly fragile incomes.”

Tasmanian economist says ‘prepare now’ for weekly rate hikes of $100-$200

To avoid further stress, Economic Society of Australia President Paul Blacklow said mortgage holders should brace for interest rates to rise by 2% and ultimately plan for them to rise by 3% by the end of 2023.

His advice comes at a time when the Commonwealth Bank of Australia is forecasting a 1.25 per cent hike in policy rates by early next year, up from the 0.1 per cent rate currently set by the Reserve Bank of Australia.

dr Blacklow said a variable interest rate of 3 percent could easily go up to 6 percent, resulting in a significantly higher payment that’s 36 percent more than it used to be.

For example, said Dr. Blacklow that a person on a $300,000 loan whose interest rate has increased from 3 percent to 6 percent would need an additional $117 per week for a total payment of $444 per week.

At the same time, a person with a $500,000 loan would pay an extra $200 per week, for a total payment of $741 per week.

dr Paul Blacklow

“Everyone needs to be prepared for interest rates to go up by 2-3% a year. There’s no harm in taking action now, putting money aside or increasing the variable rate, or slowly increasing your payments now so you don’t have to do it in the future,” said Dr. Blacklow.

“If that [cash] Rate hikes in quick succession will have a pretty big impact on anyone with a mortgage, especially those with large mortgages,” he said.

“Real estate prices are high right now, so I would imagine a lot of new homeowners would go a long way and take out mortgages of $500,000 or more to buy a new home.”

difficulties with repayment

In October last year, Australia’s Prudential Regulation Authority (APRA) increased the amount by which banks must assess a borrower’s ability to repay loans.

It found that banks must assess whether a new mortgagee is able to make loan repayments at an interest rate of at least 3 percent, which is above the standard appraisal rate of 2.5 percent.

The order came after it was found that 20 percent of new borrowers were being loaned more than six times their earnings, or that one in five borrowers was in debt beyond their means.

Tony Gray, financial analyst at TG Financial

TG financial planner Tony Gray said there wasn’t much headroom with this type of loan to cope with rising interest rates, especially when taxes and the cost of living increased.

“There will be some people who, for many individual reasons, cannot make the loan repayments. They may have less work or be unable to work, they may have lost their job, they may be ill, or there may be a marital separation,” Mr Gray said.

“If you’re unemployed and you have a loan on a home where interest rates have gone up, you could be in trouble,” he said.

“But it’s not just rising interest rates that are causing problems. Non-discretionary spending goes up, and when they also have to spend more on mortgage payments, what’s left over shrinks. Which, for some people, means diving into buffers, and when they don’t have a buffer, they fall into arrears.”