Mortgage cliff deepens as almost 25,000 households face default - realestate.com.au

Nearly 25,000 households are facing a potential mortgage crisis, as new data indicates that the financial strain is rapidly worsening. The latest OurTop10 Default Loan Report, produced by Digital Finance Analytics, reveals that 24,546 homes across 70 postcodes are at risk of defaulting on their home loans within the next year. This marks the highest level recorded in this report series and represents a 24 percent increase compared to the same time last year.

Although the quarterly increase has slowed to 3 percent, experts warn that this does not signify any improvement. Mansour Soltani, head of research at OurTop10, noted, “A slower quarter is not a better quarter. Twenty-four thousand households at risk of default is a record for this series, and the pressure is now spreading from the growth corridors into Adelaide and regional Queensland.”

In Queensland, the overall figures appeared stable, with a slight increase of 0.6 percent, bringing the total to 5,139 households across the state’s top ten postcodes. However, significant stress is being felt in regional areas. Manunda in Cairns saw a staggering 25 percent increase in households at risk of mortgage default within just three months, rising from 359 to 448. This was the largest quarterly rise in the state and the most significant jump in mortgage stress recorded anywhere in Australia during that period.

Other notable increases in Queensland include Craignish on the Fraser Coast, which surged by 17 percent to 499 households, and Yatala on the Gold Coast, which rose by 11 percent to 560. Despite a 5 percent decrease over the quarter, Toowoomba still has the highest total in Queensland, with 616 households at risk. Soltani remarked on the troubling trend, stating, “What we’re seeing in Cairns and the Fraser Coast is the same sequence that played out in Melbourne and Perth’s outer suburbs. Households fall into cash-flow stress first, they run down their savings, and a few years later the defaults follow.”

This warning comes as many borrowers continue to grapple with rising interest rates and escalating living costs. Analysts suggest that numerous families have already depleted the financial reserves that helped them navigate the initial challenges. “These figures don’t yet capture September’s rate hike, let alone a possible fifth this week, and the full impact of the earlier hikes is still working its way through household budgets,” Soltani added. “What we’re seeing now is likely just a snippet of what will become a bigger national crisis over the next 12 months.”

Victoria remains the area with the highest number of households at risk of default, totaling 6,026 across its ten ranked postcodes. Cranbourne in Melbourne’s south-east continues to be the most affected region, with an 8 percent rise to 1,364 households at risk. South Australia recorded the most significant quarterly increase of any state or territory, with at-risk households in its ranked postcodes jumping 13.6 percent to 1,874. Encounter Bay experienced the largest quarterly rise in the nation, soaring by 78 percent from 93 to 166 households.

In New South Wales, the overall risk decreased by 1.2 percent to 3,782 households, but Blacktown experienced a notable 27 percent increase in the same quarter, resulting in a staggering 76 percent annual rise. Soltani expressed concern for households, stating, “Many households have already burned through their savings buffers. The real test now is how much longer they can hold on in this economic climate.” He also noted a rise in requests for hardship arrangements from banks this year.

These figures are projections of households at risk of default over the next year, rather than those already in arrears. The situation is expected to worsen, with the Reserve Bank of Australia (RBA) anticipated to raise interest rates again soon, potentially reaching 4.84 percent—the highest cash rate since the 2008 Global Financial Crisis. Canstar’s data insights director, Sally Tindall, pointed out that further rate hikes will be challenging for borrowers, stating, “Now these households look set to be pushed to up the prescription for a fifth time this year.”

A 0.25 percent increase would add approximately $92 per month to an average mortgage of $600,000 over 25 years, resulting in a total increase of $456 in repayments for the year. “That’s going to translate into a very different Christmas for many households than the one they had even just last year,” Tindall added.

As this financial strain intensifies, home prices continue to decline. Australia’s national median home price fell by 0.3 percent in October, now 4.3 percent lower than its peak in March. Sydney’s prices are down 6.7 percent from their November peak, making it the weakest performing city in terms of property prices. Melbourne follows closely with a 6.1 percent decrease since last October. The downturn in Brisbane and Perth has also approached similar levels, with values down 5.8 percent and 5.7 percent, respectively, from their peaks earlier this year.

Eleanor Creagh, a senior economist at REA Group, noted that the sharp declines in previously strong markets illustrate how rising borrowing costs and diminished affordability are increasingly limiting purchasing power. For those who purchased homes at the market's peak using high levels of debt, the outlook is particularly concerning.