Economists warn that as many as 880,000 borrowers are heading towards a “mortgage cliff” when their low fixed rates expire this year and they’re forced to adopt a significantly higher interest rate.
Rate City Research Director Sally Tindall said as many as one in five mortgage holders were in for an “almighty shock”.
“They’re going to be hit with 10 RBA hikes all in one go,” she told 9News.
“They could see their interest rate more than triple overnight. That would see their monthly repayments soar by around 60 per cent.”
About 880,000 households are paying a low fixed mortgage rate which will end this year.
If households decide to refinance, they will find their borrowing capacity has plunged.
Compared with a year ago, someone with an average wage can now borrow about $170,000 less.
“At the very least this will mean less spending power in the economy and a slow-down in demand,” AMP Capital Chief Economist Shane Oliver said.
“It also runs the risk of increased mortgage stress and people having to sell their homes because they can’t meet their mortgage payments.”
While the US Federal Reserve hiked interest rates for the ninth consecutive time overnight, Reserve Bank Governor Philip Lowe this week signalled Australian rates are closer to a “pause”.
Lowe addressed the Australian Financial Review‘s Business Summit earlier this month and forecast some welcome news for mortgage holders with a pause in rate rises on the horizon.
“With monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy,” Lowe said.