Grace Joseph, a financial counsellor in Sydney’s outer suburbs, has noticed a new and concerning thread tying struggling homeowners together: they can’t sleep.
The banking professional says a relentless period of elevated interest rates and high living costs is pushing more people into severe financial difficulty and forcing a rising number of mortgage holders to sell.
“In the last six to nine months, we are hearing more of people in extreme stress, people who can’t afford their mortgage any more,” says Joseph, from the Financial Rights Legal Centre.
“Many call in saying they can’t sleep any more.”
Home repossessions in Australia’s most populous state, NSW, have hit decade-highs, as more households tip over the financial cliff.
“In recent weeks, we have had a number of callers who’ve also exhibited severe mental health stress, because they don’t see any other way out of it,” Joseph says.
NSW supreme court data shows that more than 1,100 filings were made for home repossessions in the first eight months of 2024, putting the state on track to record well over 1,600 this year if the trend continues.
This would represent the highest level since 2014, and is representative of the struggle facing mortgage holders around the country, especially in outer-city fringe areas, and in parts of Victoria where house prices have fallen sharply from their peaks.
Indebted households face the prospect of higher-for-longer interest rates, amid IMF warnings that Australia may have to lift rates again to keep inflation trending down, adding to its 13 hikes enacted since mid 2022.
Joseph says those under the most strain are often newer homeowners who bought with pandemic-era low interest rates, only to see rates quickly jump.
“They haven’t been able to cope with that, especially alongside the significant rise in the cost of food, transport and medicine,” she says.
Joseph says that sometimes the sale of a property only exacerbates financial stress, given the person has to then navigate a tight rental market.
Last resort
Lenders are usually hesitant to repossess homes, and instead typically offer struggling mortgage holders an opportunity to restructure loans, with terms extended, and repayment holidays and interest-only rates on offer.
If repayments still prove too onerous, a homeowner will usually sell rather than wait for a court-ordered repossession.
Peter Esho, an economist who heads Sydney-based Esho Capital, says the rise in repossessions shows that some people have reached breaking point.
“Repossession is the last resort, it’s the banks’ final option,” says Esho.
“We are starting to see resilience run out because we are two or three years into a tightening cycle and there’s only so much flexibility the banks can provide to a loan in distress.”
The repossession data is one of several indicators of heightened stress in the economy.
Bank data also shows that 90-plus day arrears have spiked on credit card and personal loans to above historical averages, while car repossessions are rising sharply.
Rating agencies note that a resilient jobs market has been one bright light, keeping arrears and bad debts from posing a broader financial risk to the economy.
But the size of home loan repayments, which now command more than a fifth of an average mortgage holder’s pre-tax income – double the percentage paid in the 90s – is still forcing households to radically change their spending.
A survey by Finder found that one in ten borrowers are skipping meals to cover mortgage repayments, while others are missing paying energy and credit card bills.
Finder spokesperson Richard Whitten says more mortgage holders are running out of money each month.
“When you’re struggling financially, a roof over your head comes first, even if it means skipping bills or other important expenses,” he says.
The comparison site also found that households were going to extreme lengths to save on other costs such as utilities, with some people telling Finder they were using an oven as a clothes dryer, or having cold showers.
Aleksandar Stanojevic, a real estate agent with Ray White in Sydney’s west, says some clients are selling their properties because they can’t see any financial relief ahead.
“People are tightening their belts, and sometimes a sale is a part of that,” says Stanojevic.
“I see some people who have just bit off more than they can chew, and it is hitting them hard now.”
He says people are doing everything they can to save their homes.
“They cut our everyday luxuries, the extras, sometimes they stop going out or ordering food.
“But in this environment, sometimes that isn’t enough.”
