Interest rate rises hit home

When buyers starting flocking to the property market in late 2008 and 2009, swept up by the government’s generous first home owner’s incentives, many expressed concern as to whether they could afford to hold onto the housing they were snapping up for the long term.

Now it appears, those fears are being realised, as rising interest rates start to leave many households feeling the pinch.

A recent report in the Sydney Morning Herald revealed that mortgage delinquencies are on the rise, increasing by 0.81% from the beginning of 2010 to September. By value, the delinquency rate rose to 1.54% from 1.23% from a year earlier.

After analysing data based on around 900,000 home loans, worth approximately $155 billion Fitch reported that one per cent of borrowers were at least one month in arrears on their mortgage repayments.

Fitch’s structured finance team associate director James Zanesi says one of the main reasons for this “considerable move” is the interest rate increases. He says however that the level of delinquencies is not yet of grave concern, as it is still well below the almost 2% rate reached in 2008.

The hardest hit home owner region was Fairfield-Liverpool in Sydney’s west, with 30 day plus arrears amounting to 1.76%, with the suburb of Nelson Bay (which has a high number of holiday homes) recording a significant 3.3% of borrowers who were behind with repayments.

Western Australia was the worst state overall, with 1.52% of borrowers a month or more behind in repayments and 2.82% in arrears in south west WA.

According to Zanesi, Socio economic variables like the unemployment rate and income are playing a part. They are more sensitive to interest rate rises.”

He said of the high rate of delinquencies in WA that, “It’s like a contradiction,” given the fact that the state has been leading the mining boom. But he reasons that the Perth housing market has stagnated, leaving borrowers highly sensitive to interest rate rises.


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