What steps are Victorians taking to escape mortgage prison?

Homeowners are finding ways to manage rising mortgage repayments

What steps are Victorians taking to escape mortgage prison?

Victorians facing mounting mortgage pressure are resorting to creative measures to make ends meet, with some renting out their homes as holiday accommodation, leasing spare rooms, or returning to work earlier than planned to cover rising repayments.

According to Airbnb, more than 40% of Australians hosting on the platform are doing so to help stay in their homes. The short-term rental giant highlighted the financial challenges many homeowners are grappling with as high interest rates persist.

Mortgage brokers also report a surge in so-called “mortgage prisoners” — homeowners unable to refinance due to declining property values — forcing many to take on additional work or reduce family time to manage repayments.

Calls for financial help spike in Victoria

In 2024, calls to the National Debt Helpline in Victoria hit a seven-year high, with more than 35,500 residents seeking financial counselling. This marked a significant jump from the 24,532 calls recorded during the peak of the COVID-19 pandemic in 2021. The primary issue behind these calls? Difficulty meeting home loan payments.

Airbnb Australia’s country manager, Susan Wheeldon (pictured above), noted that hosting has become a vital source of income for many Australians.

“Hosting is an economic lifeline for many amid a cost-of-living crisis, with 40% of Aussie hosts saying the money they earn from Airbnb has helped them stay in their homes,” she said. 

Melbourne’s robust events calendar, including the Australian Open, AFL matches, and major concerts, has provided struggling homeowners with opportunities to earn extra income. Airbnb reported a 300% increase in searches tied to Taylor Swift’s concert last year, underscoring the role of major events in boosting demand for short-term rentals.

Other platforms have observed similar trends. Share accommodation service Flatmates.com.au has reported a sharp rise in listings from live-in landlords since interest rates began climbing in May 2022.

According to product manager Claudia Conley, nearly 40% of those offering rooms are homeowners, with a third of these listings posted within the last year.

“We have seen an increase in women over the age of 55 — a lot of them are likely going through divorces and aren’t as financially well off as their partners,” Conley said. “So, renting out the room can be to support the mortgage.”

Younger homeowners hit hardest

Mortgage brokers are seeing younger homeowners, particularly those who purchased between 2018 and 2021, bearing the brunt of financial strain. Smart Lending director Melissa Gielnik said one in four clients she speaks with are in a “mortgage prison,” unable to refinance or consolidate loans due to falling property values.

While some are holding out hope for rate cuts later this year, Gielnik warned it may not offer much relief.

“I’m not that confident rates will drop more than 1% in the next two years,” she said. “And I don’t know that it will be enough to have the impact people think it will.”

To cope, some homeowners are taking on side jobs. Gielnik shared examples of clients increasing their income by up to $30,000 annually through freelance work, while others are supplementing their earnings with part-time private projects.

Maternity leave cut short

Elevated mortgage costs are also impacting young families. Loan Market Connect director Jacob Decru said some mothers are returning to work sooner than planned, while others are increasing their weekly hours to ease financial pressure.

In some cases, homeowners have found relief by exploring refinancing options with alternative lenders. Decru noted that certain lenders value properties more favourably than others, enabling clients to extend their loan term and reduce monthly repayments.

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