Interest rate hikes may send about 200,000 more households into mortgage stress, says analyst

Many homeowners may be forced to tighten their belts after the Reserve Bank of Australia lifted the cash rate by half a percentage point, sending an estimated 200,000 households into mortgage stress.

The RBA governor, Phillip Lowe, said the move was needed to try to curb inflation, after record low rates bolstered the economy, particularly during Covid lockdowns.

If passed on in full by the banks, borrowers with a $500,000 loan over 30 years could see repayments increase by $350 a month, according to financial comparison website Canstar.

Since May, when the cash rate lifted twice, borrowers on the same loan have already been paying an extra $207 in repayments.

Determining the exact number of households suffering from mortgage stress is near impossible but founding principal of Digital Finance Analytics, Martin North, estimates the figure at about 1.69 million.

Two previous rate increases are already having a big effect on households, he said.

Legal director of mortgage stress Victoria at Westjustice, Matthew Martin, said his organisation has seen more than 70 clients in the past two months.

First homebuyers are twice as likely as other mortgage holders to be in arrears, she said.

Households who are worried should speak to their bank, and try to haggle on rates, she said.

The other option is to shop around. The number of borrowers refinancing to a new lender increased in May, with over 36,000 owner-occupied and investment loans refinanced, Zahos said.