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Borrowers managing the fixed-rate mortgage cliff

The fixed-rate mortgage cliff was expected to hit borrowers hard, but according to research so far from CoreLogic, there has been no data to suggest mortgage holders are being forced to sell.

 

CoreLogic estimated that 1.3 million home loans are expected to move from low fixed rates to high variable rates in 2023 and 2024, with the peak to hit in the second half of this year. Now that we’ve reached the peak period, it seems borrowers are handling the higher costs.

 

news on residential lending

The latest quarterly data from APRA shows housing credit in arrears is extremely low at 1.2% of outstanding debt – where ‘arrears’ means late payments. Although total housing repayments in arrears has increased from a recent low of 1% in the September quarter of 2022, it still remains below pre-pandemic levels at 1.6% in the March quarter.

 

CoreLogic Head of Research Eliza Owen said that despite payment in arrears being below average, new listing counts increased 2.8%, or by around 912 listings, through July. “This was an unusual trend, because new listings have historically trended lower through July, amid a seasonal winter slowdown,” Ms Owen said. “For the past five years, new listings have moved -3.6% lower from June to July.”

 

“The trend has been especially notable in Sydney where new listings have moved 7.6% higher through the month, and in Melbourne where new listings moved 8.6% higher.” Ms Owen said while the rise in new listings could be partially attributed to more motivated selling, there could be other reasons for an out-of-season surge in new listings.

 

“New listings activity has often been led by a rise in home values and better selling conditions, with every 1% increase in home values annually translating to an average uplift of half a per cent in new listings,” she said.

 

“With home values rising for the past five months, this may be prompting more selling decisions that did not take place when the market was in decline last spring.” She noted some prospective sellers may be looking to get ahead of the spring selling season when competition is likely to be more intense. “The addition of new listings to the market are not necessarily a sign that higher mortgage costs are creating forced selling conditions,” she said.

 

“Overall, it seems official data on mortgage stress has not seen a blow out in arrears amid the expiry of low fixed-term loans.

 

“As home values rise, the risk of default also remains low.

 

“The good news for mortgage holders is that this period of economic slowdown will also take the RBA closer to its long-term inflation target, which could be the impetus for a reduction in the cash rate in the second half of 2024, as predicted by most major banks.”