NSW Supreme Court Chief Justice Andrew Bell warns of big spike in home repossessions in Australia

The chief justice of NSW has warned that courts are bracing for a “very significant” increase in home repossessions in 2023 as large interest rate hikes cause “extreme mortgage stress”.

During a speech marking the beginning of the law’s 2023 term, Andrew Bell, the highest-ranking justice on the state Supreme Court, said the courts were anticipating a large increase in home repossessions this year.

“Unfortunately, we also anticipate very significant growth in possession list work this year,” Justice Bell said at a Law Society of NSW dinner this week, pointing to increases in interest rates.

Bell said these rate hikes would likely cause “extreme mortgage stress,” with the situation worsening with the end of a Covid-19 moratorium on foreclosures and the expiration of low, fixed interest rates.

Monthly payments for Australian variable mortgage borrowers have already risen by a third in less than a year, but those who exit fixed rates in the coming months face a whopping 65 per cent increase in their monthly payments.

Borrowers since May have endured eight interest rate hikes that have taken the Reserve Bank of Australia’s cash rate from a record low of 0.1 percent to a new 10-year high of 3.1 percent.

Someone paying an average mortgage of $600,000 over 25 years has already seen their monthly payments increase by a third, or $869, from $2,629 in May to $3,498 in December.

A popular Commonwealth Bank variable rate for borrowers with a 20 percent deposit has shot up from 2.29 percent in May last year to 4.97 percent now.

In Sydney, where the median home price is $1.2 million, a working couple paying off a $1 million home loan would already have seen their monthly payments increase by $1,447, or 33%, from $4,382. dollars to 5829 dollars.

Headline inflation last year rose 7.8 percent, the steepest rise in 32 years, making another hike in February highly likely, bringing the cash rate to 3.35 percent, given that the consumer price index is well above 2 to 3 percent of the RBA. aim.

Westpac and ANZ expect three more rate hikes for May that would take the RBA cash rate to a new 10-year high of 3.85 percent.

If that happened, a borrower with an average mortgage of $600,000 would be paying a 5.72 percent mortgage rate, which would bring their monthly payments to $3,764, adding another $266 to their existing monthly payments.

Borrowers since May have endured eight interest rate hikes that have taken the Reserve Bank of Australia’s cash rate from a record low of 0.1 percent to a new 10-year high of 3.1 percent ( Pictured is an AMP chart showing the most severe pace of monetary policy tightening since the RBA began publishing a target cash rate in 1990)

Borrowers who locked in their mortgage rate in May 2021, where the cash rate was still at 0.1 percent, are in particular danger.

Back then, the major banks were offering average fixed rates of just 1.92 percent, with ANZ that year offering a slightly higher rate of 2.04 percent, which was still low.

The fine print in those loan agreements stipulated that they would move to a higher ‘reversal’ variable rate with a three in front, based on the previous cash rate of 0.1 percent.

But if the RBA cash rate were to rise to 3.85 percent, RateCity calculated that these borrowers would pay a 7.18 percent “reversal” mortgage rate unless they refinanced.

A borrower with an average $600,000 mortgage would see their monthly payments rise sharply by 65 percent to $4,163, versus $2,518 with an existing fixed rate on a 25-year loan.

The average ‘reversal’ rate with the big four banks would be 7.18 percent for loans up to $750,000.

This would drop slightly to 7.16 percent for larger mortgages because NAB offers slightly lower rates for larger loans.

A couple working on a $1 million mortgage would see their monthly payments increase from $4,197 per month to $6,930, which is an increase of $2,733.

RateCity’s director of research, Sally Tindall, said those who borrowed heavily and did not see a decent pay rise over the past two years would be particularly at risk.

“When the cliff hits some borrowers, they may realize too late that they won’t be able to climb this,” he told Daily Mail Australia.

Monthly payments for variable-rate mortgage borrowers have already risen by a third in less than a year, but those who exit fixed rates in the coming months face a whopping 65 percent increase in their monthly payments (pictured above) shows a Melbourne auction inspection in 2022)

Working-age borrowers suffer the most, with the Australian Bureau of Statistics estimating that their cost of living increased by 9.3% in 2022, mainly due to a 26.6% increase in interest costs mortgage.

RateCity’s director of research, Sally Tindall, said those who borrowed heavily and didn’t get better pay over the past two years would be particularly at risk.

By comparison, older baby boomers saw their cost of living rise at a rate that was below the inflation rate of 7.8 percent.

Retirees saw an increase of 7.4 percent compared to 7.6 percent for self-funded retirees.

The Reserve Bank’s three percentage point rate hikes last year already marked the most severe pace of monetary policy tightening since it began posting a target cash rate in 1990.

Credit ratings agency Moody’s Investors Service expects rate hikes to cause an increase in mortgage delinquency, where borrowers are 30 days or more behind on their payments, and delinquencies, where the borrower is 90 days late or more.

The NSW Supreme Court handles property repossession when a homeowner is unable to meet payments and the bank needs to sell the home or unit to recover costs.

Working-age borrowers suffer the most, with the Australian Bureau of Statistics estimating that they endured a 9.3% increase in the cost of living in 2022, mainly due to a 26.6% increase in costs of mortgage interest.