“We expect mortgage arrears to continue to rise through the remainder of this year into next,” says Centrix’s Baxter. ![]() I know by the end of the year, the vast majority will be on a much higher rate.” Falling behind They have no active experience in a high-interest-rate environment. “Those younger borrowers have only experienced a cycle that has been fairly benign. “So a lot of people went into the housing market on exceedingly low rates expecting them to stay there and of course they didn’t. “The biggest error central banks made is they took rates to zero and said they’ll stay zero for several years - trust us, we know what we’re doing,” says Goodson. In other words, younger generations are being forced to slash spending and hunker down to keep up with mortgage payments, while, Mum and Dad are off to Europe, with their savings sitting in the bank earning a nice deposit rate. Goodson highlights recent Australian research by banking group CBA, which shows how spending by older age groups has continued to rise in the past few months. “But it’s not happening on an even basis and some of the travel companies are reporting very strong numbers.” We are clearly seeing the high mortgage rate pressures come through now, he says. “We’ve seen a really uneven result season from retailers, which reflects some of the cost of living pressures and the cost of rates on the mid-20s to late-40s demographic.” Matt Goodson, managing director at Salt Funds Management, has noticed the impact flowing through corporate results. “These are people who took out a large loan, probably at about 2 or 3 per cent interest and they are now rolling off and being repriced with a six or seven in front of it.” Interest rates were at record low levels back in 2020-21, and many of those borrowers are now being re-priced onto rates that are higher than the rates at which the banks “stress-tested” the levels they could afford, Baxter says. That’s at least an extra $6000 a year they have to find for every percentage point increase in their rate - and there will be many dealing with much bigger numbers than that. Like democracy, it’s perhaps best described as the worst system apart from all the other alternatives.Ĭentrix data shows that the age group with the highest nominal mortgage right now is between 33 and 41 years old, with an average mortgage above $600,000. Using monetary policy to target inflation has never been fair. ![]() ![]() ![]() In 2021 it peaked at $925,000, although it has slipped back to about $770,000 in the past 18 months. The median house price in 1984 was $56,600. It doesn’t matter how many flat whites or avocados young homeowners forgo, there is no getting around the awful maths of modern mortgage pain. In 2007, it was my generation (Gen X) panicking about rates above 10 per cent.īut as house prices have soared, the weight of that burden has grown. The baby boomers sweated as mortgage rates spiked above 20 per cent in the mid-1980s. The pain of high interest rates is almost a generational rite of passage in this country. It’s a question many are starting to ask as high interest rates take their toll. How much financial pain is too much to inflict on young families struggling to pay off their first homes?
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