RBA's bleak admission as interest rates force homeowners to sell: 'Difficult'

The Reserve Bank of Australia (RBA) has admitted some under-pressure mortgage holders will be forced to sell their homes to keep afloat. Governor Michele Bullock delivered the crushing blow that interest rate cuts were not being considered after the economy grew a tepid 0.2 per cent in the June quarter.

Almost half of all mortgage holders (42 per cent) struggled to pay their home loan in August, according to “disturbing” research released by Finder on Thursday.

Bullock said she understood many people were struggling, with about five per cent of people with a variable-rate mortgage already facing a “cash flow shortfall” were their spending and repayments were more than their income.

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She said the “fairly small” group - predominantly made up of young people and low-income earners - would have to make “quite painful adjustments” to avoid falling behind on their mortgages.

“This includes things like cutting back on their spending to the more essential items, trading down to lower quality goods and services, dipping into their savings or working extra hours,” Bullock said.

“Some may ultimately make the difficult decision to sell their homes.”

Are you struggling to afford your basic costs? Contact tamika.seeto@yahooinc.com

A recent poll of more than 7,300 Yahoo Finance readers revealed more than two-thirds of respondents (70 per cent) were allocating 35 per cent or more of their income to their mortgage. A little more than half were spending more than 40 per cent

Mortgage stress is when you are paying more than 30 per cent of your take-home pay toward your home loan.

In her speech, Bullock said the board was looking to strike "an appropriate balance" between the RBA's inflation and full employment objectives.

The consequences of not getting on top of inflation were far more dire, she warned.

“Ultimately, we would need to slow the economy down by more, which would result in a larger rise in unemployment and higher risk of recession,” she said.

"There is a reason why there is so much talk about the cost of living – high inflation hurts everyone, and especially the most vulnerable."

Mortgage stress at a high

Finder's research found mortgage stress was at the highest level since 2019 as home loan repayments continue to eat up more and more of Aussies’ household income.

It comes as owner-occupiers take out bigger loans with the average mortgage sitting at $634,479, up 1.3 per cent from July and up 9.3 per cent from the previous year.

Finder home loans expert Richard Whitten said many Aussies were spending a disproportionate amount of their wages on their repayments.

“Million of mortgage holders have managed rate hikes so far, but now they’re facing severe financial strain as their savings and emergency funds dry up,” he said.

“Housing is increasingly becoming a major source of stress for Australians, with many struggling to keep afloat.”

What is mortgage stress?

Mortgage stress is when you are paying more than 30 per cent of your take-home pay toward your home loan.

Aussie dad Michael Williams shared he is spending between 60 to 70 per cent of his salary on the mortgage on his Melbourne home. The digital marketer told Yahoo Finance his home loan repayments were previously $1,800 per month but had shot up to $3,100.

He said once all his other expenses were paid, including body corporate, rates and insurance, there was little money left over to enjoy life.

"I'm on paycheque to paycheque at the moment," he said. "It's very hard to survive, to be honest. I don't know how many Australians are facing a similar kind of situation."

Finder research found 40 per cent of mortgage holders were putting more than 30 per cent of their earnings towards their loans, with 23 per cent spending more than half of their income on the repayments.

“The number of people struggling to make their home loan repayments has reached a disturbing level,” Whitten said.

“Rapidly rising interest rates have put first-time homeowners in a very precarious situation.”

When will the RBA cut interest rates?

Bullock ruled out a “near-term” cut in interest rates following the board's August meeting, which she defined as the next six months.

The RBA has forecast inflation will return to its 2 to 3 per cent target in late 2025 and approach the midpoint in 2026.

Some economists believe the RBA could be pushed to "hurry that first cut" off the back of weak GDP figures released yesterday, with a 0.2 per cent growth recorded for the quarter.

Commonwealth Bank is the only Big Four bank still predicting a cash rate cut this year and thinks it will come in November. Westpac and ANZ expect a rate cut in February 2025 and NAB in May 2025.

Whitten urged borrowers to compare their home loan interest rates with what was currently offered to new customers to see if they could negotiate a better deal.

If not, it could be time to “ditch them”.

Borrowers facing financial difficulties can also discuss potential hardship options with their banks and are encouraged to reach out early.

If you're feeling overwhelmed and need help dealing with financial stress, you can contact free advice and counselling from the National Debt Helpline. You can call 1800 007 007 between 9.30am and 4.30pm Monday to Friday, or reach out to Mob Strong Debt Help on 1800 808 488.

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