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AMP senior economist Diana Mousina said the risks appeared to have diminished for now.
“I don’t foresee any major distress selling in Australia,” she said. “If there was a real severe downturn in the economy … that would be a big risk factor. (But) I think that’s unlikely,” Mussina said.
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“There has been an increase in defaults on payments … but consumers have managed not to sell their homes. They have cut back on spending … they have asked family for help and they have put in more time at work if they can,” she said. “But we have seen some impact from fixed rates, but not as bad as the fixed rate cliff.”
Aird said the flexible savings buffer in offset and redraw accounts made high mortgage delinquencies less likely.
“That’s a good thing for financial stability. It means many households have funds available for mortgage payments that they can draw on if they get into financial difficulty,” he said.
Elder said savings in other types of accounts have fallen as a buffer against rising living costs.
Atelier Wealth managing director Aaron Christie-David said few borrowers were comfortably able to repay their mortgages, and those who were unable to do so were dipping into other savings and cutting spending.
“A small minority are doing OK. They’re paying off their mortgages months ahead of everyone else and they’re earning a good income,” Christie-David said. “The other 80 per cent are two-income families who are burning the candle at both ends and their savings have been hit hard. I see it everywhere. Cafes are empty, swimming lessons are almost empty when the kids go, and the gym is only half full when I go.”
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Nariman Amalsadiwala, director of Red Maple Finance, also said borrowers are cutting back on the amount they borrow.
“I’ve seen people cut back on going to restaurants or takeaways for lunch or dinner,” he said.
Amar Sadiwala said his clients avoid drawing funds from overextended mortgages and delay any major spending decisions.
“There are still quite a few people whose balances are growing, both with redrawing balances and offsetting balances,” he said. “The reason some people are increasing their balances is because they’ve put off making decisions to invest or upgrade. I have clients who want to upgrade their family home (but) they’re scared of the high interest rates.”
Aird said homeowners don’t want to fall back on their money and will do what they can to continue paying their loans.
“Families have built up a lot of buffers during the pandemic and they’re trying to stay ahead of that,” he said.
Christie-David agrees that borrowers want to avoid the perception of going backwards.
“When interest rates hit 6 per cent, they put money into the loan,” he said. “When the money is in the loan, it’s a psychological barrier. ‘I put this money into the mortgage,’ and they won’t touch it.”
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