The Reserve Bank’s decision to hike the cash rate for the seventh month in a row will mean repaying an $800k loan will feel like owing the bank $1m – and some homeowners can’t afford it.
Another landmark cash rate hike has meant homeowners with $800,000 loans will be paying more to service their debt than $1m mortgage holders paid six months ago.
The Reserve Bank of Australia announced at its monthly board meeting on Tuesday that the cash rate would increase another O.25 per cent in what will be a crippling blow for homeowners.
The RBA had already hiked the cash rate 2.5 per cent since May and the additional increase represents the fastest cumulative run of rate hikes in more than 30 years.
Experts said homeowners who purchased their properties with cheap loans over recent years were the most vulnerable.
Many now face the prospect of bigger repayments than what the banks determined they could afford before the recent rate increases.
Canstar money expert Effie Zahos said these households would not have had their finances stress tested for repayments this high.
“The serviceability buffer that banks would have assessed you on has now been fully absorbed by the rate hikes,” she said. “Each repayment now has not been factored into households’ serviceability.”
Higher repayments may have already started to stretch households. Figures released by SQM Research Tuesday showed there has been a rise in homeowners selling properties under distressed conditions.
The increase was most apparent in NSW and Queensland, where distressed listings jumped a respective 7.8 per cent and 7.5 per cent over October. The increase nationally was 5.7 per cent.
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