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“These families need to think more critically about their household budgets than they have before,” he said.
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“We’ve already seen a reduction in discretionary spending and even some essential expenses, if you count insurance as an essential expense, have been reduced. We’re likely to see more of that, especially as people start to default on their mortgage payments.”
He said households feeling the pinch most were those who had recently borrowed at low rates and had not built up any cash buffer, including owner-occupier apartment buyers in inner-city Melbourne and Sydney.
But he said households have generally spent less on retail, entertainment, restaurants and bars over the past few years, as well as on basic expenses such as health insurance and home and contents insurance. Credit card demand has also increased.
He said banks were well aware of the financial pressures consumers faced and could often work with customers to help, such as restructuring home loans or offering hardship terms.
Canstar group head of financial services Steve Mickenbecker encouraged borrowers to speak to their bank if they were having trouble repaying their loans.
Canstar modelling found that a couple who used the First Home Owner Scheme to buy a house in 2022 with a 5 per cent deposit would pay repayments of less than 30 per cent of their gross income on their minimum income, the rule-of-thumb threshold for housing stress.
But the same couple, even if their wages have risen since then, now face a massive increase in mortgage repayments, needing to pay more than 41 per cent of their income in Sydney and nearly 40 per cent in Melbourne.
Mickenbaker said a 40 per cent repayment-to-income ratio was “pretty bad”.
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“So a lot of people are going to get stuck,” he said.
“People will make all kinds of sacrifices to avoid losing their homes. And they should, because if you have to sell your house, even if you do it voluntarily and it doesn’t damage your credit rating, it’s going to take a long time to get into the market.”
But if someone borrows from a bank under hardship terms, it will not affect their credit history, he said. He also recommended borrowers call the National Debt Helpline.
Independent economist Besa Deda said that while the delinquency rate of around 0.8% was low overall, it had risen following a series of interest rate hikes.
“Younger households, lower-income households and households that may have recently entered the market are among the groups most at risk of experiencing financial stress,” she said.
She said further increases in the cash rate could put pressure on households.
But she added that many customers were prepared for the rate hike because their banks took proactive steps or because they were already well-informed about it.
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