150,000 households set to tumble off mortgage cliff

A staggering $95 billion in fixed-rate mortgages are set to expire over the next three months

150,000 households set to tumble off mortgage cliff

Nearly 150,000 Australian households are headed over a mortgage cliff as cheap fixed-rate loans are set to expire, amounting to a staggering $95 billion worth of mortgages over the next three months.

This comes as the nation grapples with the peak of the mortgage shock, and the full impact of the Reserve Bank's rate hikes starts to unfold, according to a report by The Australian.

In light of an RBA board meeting scheduled on Tuesday to discuss potential further cash rate increases, The Australian has obtained data indicating that $32 billion worth of mortgages will need refinancing each month during the September quarter.

For borrowers coming off fixed rates, the burden will be significant. For instance, a $750,000 mortgage set at 2% will see repayments surge from $3,180 per month to $4,830 per month—an overnight increase of more than 50% assuming a new rate of 6%, The Australian reported.

As the nation faces these economic challenges, Prime Minister Anthony Albanese returned to Parliament after a six-week winter break to confront mounting concerns about the cost of living from both Peter Dutton and the Greens.

The Greens have demanded a rent freeze to pass the prime minister's $10 billion housing fund through Parliament, while the Coalition proposes replacing the $40-per-fortnight JobSeeker rise with the option for welfare recipients to keep up to $300 in earnings without losing their payments. However, Albanese declined both proposals, emphasising his government's commitment to combat inflation and provide cost-of-living support without adding to inflation, The Australian reported.

“We do have a plan to combat inflation,” Albanese told Parliament. “It is about turning the $78 billion deficit into the first budget surplus in 15 years. The second is providing cost-of-living help that supports household budgets without adding to inflation. And thirdly, investing in supply chain challenges.”

Despite the government's claims of mortgage holders being better off than in the past, Opposition Treasury spokesman Angus Taylor questioned the government's reliance on outdated figures in the wellbeing budget.

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Concerns over inflation and its impact on the economy persist, with Treasurer Jim Chalmers highlighting the need to prioritise tackling inflation as the government's primary challenge.

Amid these economic shifts, a notable trend observed in 2021 was Australians rushing to secure historically low fixed mortgage rates of 2% or below, resulting in a substantial share of borrowers taking up such loans, amounting to 80%.

As rate hikes initiated by the Reserve Bank since May 2022 continue to unfold, RBA analysis estimates that around 800,000 households on fixed-rate loans are yet to experience any rate increase. Jarden chief economist Carlos Cacho predicts that $32 billion in fixed loans will expire each month during the three months leading up to September—an estimated total of nearly $550 billion over the 15 months until March 2024, The Australian reported.

Given the lingering impact of fixed-rate mortgages, it appears that the Reserve Bank may still face challenges in achieving its goals, even if it chooses to maintain the current rate, The Australian reported. Nevertheless, economists remain divided on whether the RBA will opt for a 13th rate hike or decide to pause at the current rate of 4.1%.

The RBA board acknowledged the potential risks of pushing rates too high after implementing aggressive monetary policy tightening, and the complexity of dealing with fixed-rate mortgages has made the task of controlling inflation without a significant increase in unemployment particularly challenging, according to The Australian.

As the extent of the financial strain on many Australians becomes apparent, Chalmers acknowledged that the 2022-23 surplus is expected to exceed $20 billion. However, the government currently has no plans for additional support for struggling households, though an improved fiscal position may allow for future relief in upcoming budgets.

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