When Nick Noel and his partner bought their four-bedroom house near Penrith in 2018, they did not expect interest rates to rise.
“We were talking to the broker, and he said look, it’s not really worth putting anything on a fixed rate, it won’t go up by that much,” Noel said.
“Everything they had been saying was ‘don’t expect it to go up that high for the next few years’. It had a material impact on the decision we made.”
Their home cost $700,000, and since the rate rises, their mortgage has jumped an extra $400 a month to $3000. Despite refinancing six months ago, they have still had to cut down on spending.
“The hardest thing, and this is where I try not to get emotional, but it’s having to explain to the kids we can’t do things we used to do.
“How do you explain the rate rises to a six-year-old?”
Nick and his family aren’t alone. With the central bank hiking up interest rates to a decade high of 3.35% last week, pressure has increased on mortgage holders.
“Borrowers have seen their monthly repayments increase by nearly 50% since April 2022, driving a $950 hit to the monthly budget for those with a $500,000 mortgage,” said Canstar’s general manager, research & insights, Mitch Watson.
And there is more pain coming down the pipeline, with ANZ, Westpac and the Commonwealth Bank all predicting a peak of 3.85%, while NAB has lifted its estimate to 4.1%.
“Should we see the cash rate increase by a further 0.75% to reach a rate of 4.10%, that will require borrowers to find an additional $250 a month to meet the minimum repayments on a $500,000 home loan,” Watson said “Or as much as $500 extra a month on a $1m loan.”
As rising rates hit first home buyers and middle-class families, there is one demographic who have a strong buffer – investors.
Founder of Investors Dream, Sanjeev Sah, owns 10 houses. He doesn’t like what the RBA is doing but admits it is a good time to make money from owning property.
“I’m becoming wealthier every day – because we have a housing crisis,” Sah said.
“The RBA is not helping that, and the government is not coming forward to help solve the problem. Correct?
“I don’t want the bad policy … I want a healthy economy, right. But what they’re doing is helping the investors … because there is a housing crisis, which means the rent will go up and your prices will go up.
“Not only me, for everyone, for all the people who have got properties.”
Sah rents out eight properties, which have a market value of around $5m. He has a debt of $3.6m.
“Now what that means is, if my capital growth is happening at even 5% every year, which is very conservative for me, I’m making $250,000 every year.
“If [the] RBA rate of interest goes further up, and even I lose $50,000, guess what? I’m making $250,000 … [that] is still net profit of $200,000 in capital growth.”
On Friday, RBA assistant governor Brad Jones said fewer than 0.5% of people were in negative equity – where the value of their home has fallen below what it cost – but that there was a huge disparity between wealthier Australians cruising through the rate rises and those struggling.
“We see a very uneven picture,” Jones told a House of Representatives economics committee hearing.
“On one hand, you’ve got around half our variable rate occupiers who are more than one year ahead on their mortgage payments, in fact, about a third are more than two years ahead.
“At the other end of the distribution, we observe about 10% of variable rate unoccupied borrowers who have got virtually no spare cashflow after they meet their mortgage payments and their living costs.
“There’s no question that there’s a segment of the community that are hurting now.”
Last year, Stacey Young, 33, and her husband bought a $550,000 home in Beveridge, 37km north of Melbourne’s CBD.
With the rate rise their mortgage has almost doubled, from $1800 to $3000 each month.
Young says it is not the increase that makes her mad but the fact the banks are making money from the situation, with the Commonwealth Bank and NAB recording bumper profits this week.
“I understand we need to be boosting the economy, but when our money is going to CEOs, they don’t need the extra cash,” Young said.
“I could justify it if I knew it was increasing the Jobseeker payment, parenting payments or the aged pension but it’s not.
“The rich are just getting richer.”
The family have cancelled holidays, cut spending, are paying their bills late and working extra overtime. They are desperate to keep their home.
“It’s going to end up crippling so many families and it’s not OK. We need to put the pressure on the RBA, they’re not with reality.”
