Propertybuyer CEO Rich Harvey has told The AFR that he expects an upturn in distressed property sales by mid-2023.
“I think there’s about a six- to nine-month lag effect on the rate rises flowing through the economy”, Harvey said.
“I think that when people with large mortgages come off their 2% fixed rates to 5% mortgage rate next year, they’re going to feel the strain”.
A lot will depend on how aggressively the Reserve Bank of Australia (RBA) lifts interest rates, as well as how the labour market holds up.
Almost everyone expects the RBA to lift the official cash rate (OCR) another 0.25% in December, taking it to 3.10%. From there opinion is divided on future moves.
For example, the CBA expects the RBA to remain on hold, whereas NAB expects another 0.5% of tightening, and ANZ and Westpac another 0.75% of hikes.
Indeed, RBA governor Phil Lowe said on Tuesday that “the Board expects to increase interest rates further over the period ahead”.
The below table shows how much variable mortgage repayments would rise if the big four banks’ interest rate forecasts were to come to fruition versus their level in April prior to the first rate hike:
A 41% to 52% lift in monthly average variable mortgage repayments is a massive increase and will inevitably lead to a significant number of mortgage holders – especially those that purchased more recently – getting into distress.
The prospect of distressed sales will increase further once the large numbers of cheap (circa 2.25%) fixed mortgages expire in 2023 and are reset to rates that are at least double their current levels:
By mid next year, the impact of the RBA’s aggressive rate hikes will have filtered through the mortgage market, pushing many borrowers into stress and inevitably causing a jump in distressed sales.
