Who’s the most vulnerable to mortgage stress?

Whenever there’s debate about mortgage stress, many people presume that it’s our poorest suburbs that are the most at risk.

But new research has found that some of Australia’s wealthiest suburbs are actually in trouble, too.

Private data compiled by Digital Finance Analytics captured 16,000 homes within 20 suburbs that were under significant financial strain.

And the results produced some interesting findings…

In a suburb such as Melbourne’s well-to-do Toorak, for example, where the median house price is $3.5 million, households are five times more likely to default on their mortgthe-sea-657043_1920age repayments than the national average.

In the equally prestigious beachside suburb of Bondi, residents are facing the same unattractive default odds.

So, while many of us think that everyone that buys in these prestigious suburbs is on a clear trajectory to wealth, many are already struggling to keep their financial heads above water.

And what’s even more concerning, of course, is that they’re already at a higher risk of default when interest rates are at historic lows.

So when rates rise, as they inevitably will do at some stage, what do you think will happen?

Living the “high” life

In my books and seminars, I often talk about the concept of expenses increasing to meet income. 

What I mean by this is that affluent households often also have higher expenses because they earn more money and usually spend it more freely, too.

But when they get a pay rise, instead of saving it or keeping their costs at the same level, their expenditure often ramps up to meet their new financial situation.

They celebrate their bonus or salary increase by splashing out on a new car – often on credit – or an exotic overseas holiday, and their finances are soon no better off than they were before their windfall.

But if they’d kept their spending at the same level, then they could’ve used that money to make more money by investing in another property perhaps.

By making more extravagant purchases, well, they’re simply throwing away their financial good fortune.  property investment

According to the research, on Sydney’s leafy north shore, in suburbs such as Hornsby and Gordon, homeowners are already making late mortgage repayments.

The problem with these types of “status” suburbs is that many people take on huge mortgages for the “privilege” of living there.

Sure, with rates at the currently low levels, they can mostly manage the mortgage repayments (along with bad debt such as credit cards) but it will only take a small rate hike for them to start feeling the pinch.

Analysis of the research also indicated that households within wealthy suburbs often owned more investment properties so could struggle with repayments under a higher interest rate environment.

20 postcodes feeling the most mortgage stress:


What’s the lesson from all of this?

We’re enjoying a period of historically low interst rates, but as they say “this too shall pass”

How will you cope if interest rates go up one or two percent. risk investment market

Now they probably won’t need to go up that much this cycle to slow down the markets and an interest rate rise is not on the cards at present, but everyone knows rates will rise again one day.

Here’s the thing: Those households who are at risk of default usually only have themselves to blame.

I know that’s sounds harsh but it’s true.

If they’d kept to a proven strategy, regardless of whether they bought investment properties or their home, they probably wouldn’t have over-extended themselves financially in the first place.

When you couple that with extravagant spending, usually on credit, their financial deck of cards is ripe to collapse at any moment.

A better idea would have been to buy within their means and to develop and stick to a budget, because just because they’re considered “prosperous” it doesn’t mean that they know how to create, or hold on to, wealth over the long-term.

A long-term plan is always more valuable than a short-term “high” from buying an expensive car or a house in a prestige suburb that you ultimately can’t actually afford.


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Brett Warren


Brett Warren is Director of Metropole Properties Brisbane and uses his 13 plus years property investment experience to advise clients how to grow, protect and pass on their build their wealth through property. Visit: Metropole Brisbane

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