Interest rate pain: The areas of Australia where EVERY household is in mortgage stress

By William On Apr 22, 2023

Every borrower in parts of Sydney, Melbourne and some regional areas is now suffering from mortgage stress.

Digital Finance Analytics has mapped the postcodes where 100 percent of households are in a situation where their expenses exceed their income.

Mortgage stress occurs when someone can’t pay their bills because they don’t have the cash flow.

The worst increases in mortgage rates since 1989 are hitting borrowers in the outer suburbs of Australia’s largest cities, where wage increases have failed to keep pace with the rising cost of living.

Campbelltown, 56km southwest of Sydney’s city centre, is home to 100 per cent of borrowers – or 12,198 households – in the 2560 postcode, which also includes Airds, Leumeah and St Helens Park.

In western Sydney, mortgage stress is also universal in the 2770 postcode for Mount Druitt, Bidwill, Minchinbury, Lethbridge Park and Whalan.

In Melbourne’s far south-east, 100 percent of borrowers – or 9,308 households – in the suburbs of Berwick and Harkaway are under pressure.

Every borrower in parts of Sydney, Melbourne and some regional areas is now suffering from mortgage stress

Digital Finance Analytics director Martin North said suburban areas with high mortgage stress tend to have newer homes, which meant borrowers were less likely to build up sufficient savings.

Zip codes where 100 percent of borrowers have mortgage stress

2560: Outer Southwest Sydney with Campbelltown, Airds, Ambarvale, Appin, Bradbury, Blair Athol, Bradbury, Englorie Park, Gilead, Glen Alpine, Kentlyn, Leumeah, Rosemeadow, Ruse, St Helens Park, Wedderburn, Woodbine

2765: Sydney northwest with Riverstone, Box Hill, Maraylya, Marsden Park, Nelson, Oakville, Vineyard

2770: Sydney west with Mount Druitt, Bidwill, Blackett, Dharruk, Emerton, Hebersham, Lethbridge Park, Minchinbury, Shalvey, Tregear, Whalan, Willmot

2176: Sydney southwest with Bossley Park, Abbotsbury, Edensor Park, Greenfield Park, Prairiewood, St Johns Park, Wakeley

2768: Sydney northwest with Stanhope Gardens, Glenwood, Parklea

3806: Outer southeast of Melbourne across Berwick, Harkaway

2620: Southern New South Wales near Canberra covering Queanbeyan, Queanbeyan East, Queanbeyan West, Burra, Crestwood, Gundaroo, Karabar, Michelago, Royalla, Sutton, Wamboin, Williamsdale

7250: Northern Tasmania with Launceston, East Launceston, West Launceston, Newstead, Norwood, Prospect, Prospect Vale, Ravenswood, Riverside, St Leonards, Summerhill, Travelers Rest, Trevallyn, Waverley

“A lot of these areas are those high-growth corridors where people have bought off the plan,” he said.

“There’s been a lot of new construction – a lot of people have high mortgages and, frankly, little room for maneuver.”

Launceston in northern Tasmania and Queanbeyan in southern NSW bordering Canberra also had a mortgage stress rate of 100 percent.

Across Australia, young, growing families were the most likely to struggle with 86.23 per cent of mortgage stress, with many first home buyers in the figure.

This was even higher than the average of 76.34 percent for the combatants’ suburbs.

Mr North said borrowers unable to refinance to a more competitive mortgage rate would be worst off, especially if they only had a small down payment on a mortgage.

“We’re seeing more people locked up in what I would call ‘mortgage prisons’ simply because they can’t find anyone who can give them a better rate because they have higher risks and limited equity in their property,” he said.

Falling house prices also mean that these borrowers are more likely to have negative equity because they owe the bank more than their home is worth.

The Reserve Bank of Australia’s 10 consecutive rate hikes have already led to a 50 percent increase in variable mortgage repayments, with cash rates now at an 11-year high of 3.6 percent.

The Commonwealth Bank and Westpac both forecast that the RBA will raise rates to 3.85 percent at least once in May.

ANZ also forecasts another 0.25 percentage point increase, bringing the cash rate to 3.85 percent, but in August.

“As we see interest rates around this level or maybe slightly higher, mortgage stress will continue to build,” North said.

“I don’t see real incomes catching up anytime soon, so many households will continue to struggle.”

The Reserve Bank left interest rates unchanged for the first time in a year in April, but the minutes of that meeting showed that another rate hike was being considered this month.

Digital Finance Analytics director Martin North said suburban areas with high mortgage stress often have newer homes, meaning borrowers were less likely to build up sufficient savings (pictured is a Sydney auction)

In western Sydney, mortgage stress is also universal in the 2770 postcode for Mount Druitt (house pictured), Bidwill, Minchinbury, Lethbridge Park and Whalan

Members considered the argument that in these circumstances it was better to keep raising interest rates to ensure that inflation is brought back to target more quickly, noting that monetary policy could be eased quickly if an adverse shock to it causes inflation and economic activity to fall by more or faster than predicted,’ it said.

A variable-rate borrower with an average $600,000 mortgage has seen their monthly repayments increase 50 percent since May 2022 to $3,460, up from $2,306.

This happened when the Commonwealth Bank rate for a borrower with a 20 percent mortgage deposit increased from 2.29 percent to 5.64 percent.

That $1,154 monthly increase means annual repayments are up $13,848.