RBA Rate Hikes Put First-Home Buyers Under Pressure

Five interest-rate rises have left first-home buyers facing higher mortgage repayments, with Tuesday’s latest Reserve Bank of Australia increase set to add about $600 a month to Sydney buyer Izzy Honan’s payments compared with the start of the year. Roy Morgan predicted the share of mortgage holders considered at risk of mortgage stress would reach 33.1 per cent: a record 1,821,000 people, or 71,000 more than before the latest rise.

The cost of the property dream

“I find myself asking, how is this the Australian dream when I’m constantly anxious if I can afford my mortgage or not?” Honan asked in a social-media video this week. Her question cuts through a familiar sales pitch: buying property as a measure of success, while the people carrying the debt absorb the pressure when repayments climb.

Honan, 25, bought a two-bedroom unit in Sydney in July last year. She works in the banking industry, saved for years for a deposit, and received help from her parents. While friends travelled overseas, lived abroad and enjoyed their twenties, she prioritised saving. She used her full borrowing capacity.

“Growing up, you have the dream or the belief that getting into the property market as early as possible is the ultimate measure of financial success. But I think the ultimate measure is actually being able to maintain living in the property,” she said. She said she sometimes questioned whether the sacrifices were worth it.

“For many in my generation, it can mean years of financial pressure and sacrificing life experiences for the pursuit of having a security or having an asset of that value in your name,” Honan said. She said she had no regrets about buying and was proud to own a property and afford to live in it, even if she had to cut costs elsewhere.

Families absorb the increases

Canstar said Tuesday’s hike would add $92 a month to repayments for a borrower with a $600,000 loan and 25 years remaining. The five hikes this year would add a cumulative $456 a month for that borrower. Those figures turn a rate decision into household trade-offs.

Loan Market mortgage broker John Hubon said many first-home buyers he spoke with were “exceptionally stressed.” He said borrowers discuss rate rises and how they’re included in assessments of servicing and borrowing power, but the reality changes when buyers move in and face five hikes in one year. “I think none of us expected that,” he said.

Hubon said clients were giving up holidays to meet repayments. Some parents were considering moving children from private to public school or withdrawing them from daycare. He said some parents were taking a day off work or reducing their hours because sending children to daycare could be “effectively cost-neutral or worse.” One client who bought 12 months earlier and experienced the five rate rises took stress leave from work, Hubon said. “Those five rate rises are just killing everyday families,” he said.

Who can escape the pressure?

Lenders assess new loans using a 3 per cent buffer above the market rate to judge whether borrowers can withstand further increases. The buffer is intended to protect borrowers, but it can also make it harder for first-home buyers with higher repayments and relatively lower incomes to switch banks.

Equifax found refinancing demand among homeowners aged 26 to 35 was down 14.2 per cent year on year in September. Demand rose 3.2 per cent among homeowners aged 56 to 60 and 2.3 per cent among those aged 60 and over. Hubon said first-home buyers with high loan-to-value ratios and little equity often couldn’t get a better rate. He said he now reviews some clients’ home-loan rates every three months rather than every 12 months, particularly for first-home buyers.

“Every three months we’re actively pushing their bank to see if we can get anything out of them because they are very stressed,” Hubon said. Equifax Australia executive general manager Moses Samaha said older homeowners with higher equity and lower loan balances retained more flexibility to negotiate or refinance. Younger Australians, he said, faced high borrowing costs and strict serviceability assessments that could block access to a lower rate. “They’re effectively locked into their existing arrangements right at the moment they need relief most.”