After too many late nights worried about his mortgage, Andy chose to sell up and rent instead

by Admin
August 5, 2024

Financial services consultant Andy Barrow used to be a home owner in the nation’s most expensive city.

It seemed as if he was one of the lucky ones, with many would-be buyers struggling to get into Sydney’s hot housing market in recent years.

But Mr Barrow did not feel so fortunate as he lay awake most nights, feeling stressed about how he and his wife would continue to pay off their mortgage.

Tired of feeling so helpless, the couple made the decision to sell their house in northern Sydney last year, abandoning the idea of home ownership.

Mr Barrow and his partner are now renting on the New South Wales Central Coast.

“It’s a massive relief,” he told the ABC.

“From four hours sleep a night — wringing my hands and worrying about the future — [to] the present — waking up refreshed [and] uninterrupted — it’s a big change.”

When the couple bought their place in northern Sydney in 2020, interest rates were at record lows and they found the repayments “doable”.

But two years later, Mr Barrow and his wife stopped working full-time, just as the Reserve Bank started lifting interest rates aggressively.

It sent their repayments surging from about $5,500 to $8,500 per month.

Mr Barrow is one of many Australians who have sold their homes within a few years of their purchase.

The number of homes that have been resold in less than three years has jumped to 16 per cent, its highest level in at least a decade, according to figures from CoreLogic.

In good times, quick resales are typically a sign of investors flipping houses and apartments to earn a speedy profit.

While that may still be true, this year’s increase in short-term resales may also be indicative of mortgage hardship, with owners like Mr Barrow choosing to sell their homes before falling too far behind on their repayments.

One advantage of property prices surging to record highs is many of these borrowers have been able to avoid mortgage hardship by selling at a profit.

But giving up on the dream of home ownership, particularly after coming so close to realising their goal, is no small thing for most people.

Households falling behind on other bills

Housing loans are “in arrears” when borrowers miss their minimum scheduled payment but are still expected to make good on their loan, according to the Reserve Bank.

Data from ANZ shows the number of borrowers behind on their repayments is on the rise.

“The number of borrowers who are at least 30 or 90 days behind on their repayments is ticking up,” ANZ customer fairness adviser Evelyn Halls said.

“We have about three in 1,000 customers in hardship.”

Evelyn Halls is the customer fairness adviser at ANZ.(ABC News: Matthew Holmes)

But while mortgage arrears are rising, they are still quite low by historical standards.

“Mortgage arrears in our data set are sitting at around 1 per cent, which is actually around long-term averages,” said Erin Kitson, director of structured finance at S&P Global Ratings.

“It’s certainly well below where we saw them following the [global] financial crisis.”

While that might be the case, Ms Halls observed these numbers were “not quite reflecting the true amount of financial stress in the community”.

One reason for this is financially stressed Australians are choosing to default on their other bills before missing their home loan repayments.

These missed payments do not show up in the narrowly defined mortgage arrears data, but are still a clear indicator of financial distress.

“People are falling behind on council rates, utility bills — like their electricity, gas and water bills — telephone bills, other debts like credit cards and personal loans,” Matthew Martin, legal director of Mortgage Stress Victoria, said.

“We’re seeing people who are foregoing healthy diets, living off packets of two-minute noodles for their family to get by.

He said people were prioritising mortgage repayments over their other debts because they were worried they would lose their homes if they fell behind.

But the reality is that falling behind on other bills can also pose problems to a borrower’s financial future.

“They’re also at risk of losing their home if they fall behind on their council rates and their utility bills,” Mr Martin said.

Matthew Martin is the legal director of Mortgage Stress Victoria.(ABC News: Matthew Holmes)

The rise of households moving to interest-only loans

There are other signs that show how much financial stress many borrowers are experiencing.

In a survey of 1,000 Australians, the comparison website Finder found 21 per cent of those interviewed had switched to making “interest-only” repayments in the past two years to avoid falling behind on their mortgage.

“It makes your repayments lower in the short term,” Finder’s home loan specialist, Richard Whitten, said.

“But in the long term, it does increase your interest costs quite a lot.”

Richard Whitten is a money editor at Finder.(Supplied: Richard Sydenham)

Finder also noted that 41 per cent of respondents admitted they were struggling with home loan repayments — the highest-ever result for that particular question.

“The difficult period the borrowers are in right now is not really going to go away in the short term,” Mr Whitten said.

That is particularly the case for two of Australia’s biggest cities Melbourne (in the north-west and north-east) and Sydney (in Parramatta and the south-west), according to S&P Global Ratings.

“That probably reflects greater household leverage and differential between income versus property prices, given the expensive price tag in those cities,” Ms Kitson said.

“We expect mortgage arrears to rise, but not particularly [much] higher from where they are now, given that the unemployment rate is not expected to materially increase from where it’s sitting now.”

At this stage, investors are betting the RBA is finished with its interest rate-hiking cycle and markets are expecting rate cuts to start from February.

What to do when falling behind financially

In recent years, Australian households have experienced a global pandemic and then a cost-of-living crisis that has had a significant impact on their mortgage stress.

“During these periods, we’ve certainly seen spikes in mortgage stress and people calling our service for help,” Mr Martin said.

“It is a really broad cross-section of society when it comes to mortgage stress.

“We see older people who are no longer working and are struggling to meet their mortgage repayments. We’re even seeing younger people who are working full time who can no longer afford their mortgage repayments because the interest rates have risen so much. And families who are struggling to make ends meet with the cost of living being unmanageable.”

Australian households have experienced a global pandemic and then a cost of living crisis.(ABC News: John Gunn)

Analysts said the most important thing for borrowers to do if they expected to fall behind on payments was to reach out to their bank as soon as possible.

“We actually encourage people to call as soon as [they] have any concerns,” Ms Halls said.

“It can be really helpful to reach out and to make that call. Don’t wait until you’ve gotten considerably behind in repayment.”

Mr Martin said there were many options available to help borrowers experiencing financial hardship, including asking for a temporary deferral on their mortgage repayments.

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Other options include asking for a discretionary reduction in the interest rate on your loan or for an extension of the term of your mortgage to bring down your mortgage repayment amount.

“It’s important that lenders are proactively communicating the full range of hardship assistance options that are available to their customers,” Mr Martin said.

As for Mr Barrow, he said he had no regrets about giving up on property ownership for now and deciding to rent.

In fact, the absence of mortgage anxiety has had unexpected physical benefits.

“Back problems that I’ve had for years, pains that have been shooting up and down my legs, [have] rather magically solved themselves quite quickly after we sold that house,” he said.

“So it was a big relief.”

If you’re worried about your mortgage and further interest rate changes and would be prepared to share your experience with us, please get in touch via the form below.

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Posted 5 Aug 2024Mon 5 Aug 2024 at 6:36pm, updated Yesterday at 7:15amTue 6 Aug 2024 at 7:15am