- Sydney’s Mortgage Loan Default Prevention: Mitigating Profit Risks
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- Data Reveals More Than 100,000 Extra Homeowners Expected To Be Under Mortgage Stress
Sydney’s Mortgage Loan Default Prevention: Mitigating Profit Risks – Homeowners in Sydney’s western suburbs are among the most financially stressed across the city, with up to 500 households at risk of falling behind on their mortgages, credit bureau Illion estimates.
According to data, about 0.63% of housing loans in December were delinquent by more than 30 days, and this is expected to rise to 0.66% after the 25 basis point interest rate increase this month.
Sydney’s Mortgage Loan Default Prevention: Mitigating Profit Risks
In Sydney’s west, Mount Vernon, Old Guildford and Shalvey each have about 2.5 per cent of homes with loans that are more than 30 days past due.
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In the case of South Granville, also located in western Sydney, the number of households with mortgage loans that are more than 30 days past their due date amounts to 2.20%, and if interest rates rise further, this figure is expected to reach up to 2.40%.
In the south west, 2.5 per cent of homes in Mount Hunter are at risk of default after falling behind on mortgage payments, while nearby suburbs of The Oaks, Pheasants Nest, Bargo, Buxton and Werombi have arrears rates between 1.6 and 2.5 per cent. .
The delinquency rate in Kulnura, west of the Central Coast, is 1.9% and is expected to rise to 2% due to further interest rate increases.
Entrance and Tacoma have 2.2% and 2.5% of households delinquent on their mortgages, respectively, and are expected to see another increase if there is another interest rate increase.
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Ahead of the central bank’s interest rate hike announcement earlier this month, Barrett Hasseldine, head of modeling at Illion, said the number of households falling behind on their mortgage payments had been rising for four months.
This is mainly because the cost of living has risen sharply, with wages unable to keep up and households squandering or spending their savings due to COVID-19.
Households in lower-middle socioeconomic areas, especially those who recently purchased a home or refinanced during the pandemic, are most at risk because they have the most debt with the least equity.
These households have already exceeded the 3% stress tested threshold when taking out or refinancing a mortgage. This means that the current interest rate exceeds the amount you can repay.
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In contrast, many of Sydney’s inner or coastal suburbs are owned by people who are long-term mortgage holders who have paid off a significant portion of their mortgage or have paid it off in full.
After all, there wasn’t just one Sydney property market, there were markets within this market. Houses, apartments, townhouses and villa units are located in the outer suburbs, mid-ring suburbs, inner suburbs and CBD.
As mentioned above, different socioeconomic and demographic sectors across the city are experiencing rising costs of living differently.
With wages not rising at the same rate, inflation, higher rents and higher mortgage costs will deter first home buyers from entering the market or limit their ability to borrow.
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There are many first home buyers who have borrowed to their full capacity and will struggle to repay in the future at rising interest rates, which will limit capital growth at the lower end of the property market.
Then there are the luxury suburbs, where wealthier homeowners cash in on higher disposable income and face minimal or even no risk of defaulting on their mortgage payments despite rising interest rates.
The dispersed property market across Sydney means I only recommend investing in areas where resident incomes are growing faster than the national average.
That’s because it’s these suburbs that can withstand increased real estate market fluctuations and rising interest rates.
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These locations typically have higher disposable income and people are likely prepared to pay a premium to live in a property in one of these locations.
Most importantly, you should invest in investment grade real estate. Because while all real estate can be considered an investment, not all of them make financial sense.
What makes a great investment property for me will not be the same as what fits your investment needs.
You should also only invest in areas where real estate will retain its value over the long term.
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But even before you find the right location, make sure you have a strategic real estate plan to get you through the upcoming difficult times the real estate market will face.
In addition to remembering to focus your efforts on investment grade properties and locations, you should also remember that real estate investing is a process, not an event.
This means that tasks must be performed in the correct order. Choosing a location and the right property in that location happens right at the end of the process.
The market is evolving, but not all properties are increasing in value. Choosing the right properties is now more important than ever.
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Whether you’re a beginner or an experienced investor, you need an advisor who takes a holistic approach to your wealth creation, just like we do today, and that’s exactly what you get from the multi-award-winning team at .
Robert Chandra is a real estate strategist and has an intrinsic understanding of the real estate market based on his many years of real estate experience. This, combined with multiple degrees, provides a holistic perspective that allows us to diagnose our clients’ situations and goals and create strategies to bridge the gaps. Tips for dealing with mortgage stress: Call your lender, avoid taking on additional debt, and prioritize other bills. Photo: Lemono/Getty Images/iStockphoto
It is estimated that a quarter are already experiencing mortgage stress, while another 800,000 face a steep rise as their fixed term loans end this year. Experts discuss countermeasures
Homeowners are expecting their mortgage payments to rise further as the Reserve Bank raises interest rates for the ninth successive time, and financial advisers are urging them to prepare for mortgage stress.
Australian Property Market
If a homeowner is putting more than 30% of their pre-tax income toward mortgage payments, they fall under the definition of mortgage stress.
“This means a significant portion of your overall income can put a roof over your head,” says Theo Chambers, CEO of Shore Financial.
This forces homeowners to “make a lot of very difficult decisions,” says financial counselor Deb Shroot. And costs that were once considered important, like insurance, may be the first to disappear.
Chambers said homeowners had recently calculated the affordability of mortgages based on record low interest rates during the Covid pandemic.
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Find out what experts think about the RBA’s rate hike and what’s coming next.
However, the RBA has been raising interest rates from May 2022 in response to soaring inflation. The official cash rate is currently 3.35%, the highest since 2012. The RBA also said further interest rate hikes would be needed in the coming months to curb inflation – to 7.8%, a far cry from the bank’s 2-3% rate. % target.
“This is probably the biggest wildcard,” says Tim Lawless, director of research at CoreLogic. “The fact is that interest rates rose much further, much faster and earlier than anyone thought.”
Chambers added: “People probably borrowed more money than they could have today.” “These people are not going to get approved today,” with borrowing capacity down nearly 35% from 12 months ago.
Data Reveals More Than 100,000 Extra Homeowners Expected To Be Under Mortgage Stress
Almost a quarter of mortgage holders were at risk of mortgage stress as of December last year, and that number is expected to worsen.
RateCity said this week that with the official interest rate increase, the average borrower on a $500,000 loan will likely end up paying an extra $908 per month since rates began rising last May. For a $750,000 loan, the latest interest rate increase means an extra $1,362 per month since May.
“We expect [mortgage stress rates] to be higher through 2023,” says Lawless. “Partly because of high interest rates, but also because of the cost of living.”
The risk of mortgage stress is “more limited to households that have experienced some kind of change in circumstances,” such as a decline in income or a job loss, Lawless says.
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“All kinds of essential expenses, like food prices, gasoline, energy,” she says. “So this is making it more and more difficult for people to not only pay their mortgage but also pay their rent.”
The RBA expects more than 800,000 households to switch from fixed rates to more expensive floating rates this year.
“Mortgage rates are adjusting from around 2% to closer to the mid-5% range,” says Lawless. “We should expect mortgage issues to become more prominent throughout the year.”
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