According to Moody’s Investors Service, the next few months will be difficult for Australian borrowers. This is especially true for those who have interest-only loans. Mortgage delinquencies are expected to rise.
Interest-only borrowers who took out mortgage deals in 2014 will soon start paying on a principal-and-interest basis. As the average mortgage repayment increases by 37%, it is likely that more Australians will fall behind in their mortgage payments. This year, interest-only periods for around 900,000. They collectively owe $295bn.
Moody’s stated that Australia’s record-high household credit, which is almost 200% of its annual gross disposable income, would contribute to a slight increase in delinquencies over the next quarters.
In fact, the 30-day default rate for Australian residential mortgage backed securities increased from 1.54% in December last year to 1.58% this March.
Moody’s predicted that delinquencies would continue to grow in the coming quarters because of rising debt levels, conversion of interest-only loans to principal and interests loans, and falling house values.
Data from the Australian Bureau of Statistics shows that there has been an increase in the number of Australians who are still paying off mortgage debts after they retired.
The percentage of homeowners aged 55-64 who have a mortgage has increased from 14% to 47% over the last 25 year. This age group’s debt-to-income ratio has risen from 72% to 13%.
Learn more Soon, it will be difficult for retirees to buy a home.
According to industry watchers Rachel Ong VIforJ and Gavin Wood, three factors have contributed to this rising trend among retirees.
One of the most important aspects was how property prices grew much faster than incomes. Since the 1970s, the national ratio of dwelling price to income has more than doubled.
“Despite lower property prices, the ratio is still historically high. This means that households must borrow more money to purchase a home. They also said that this delays the transition to homeownership, possibly shortening the remaining time available to repay the loan.
Another reason for the rise in debt-ridden retirees was their frequent use of flexible home loan options that grant access to housing equity.
ViforJ, Wood and Wood reported that “in the first ten years of this century one in five homeowners aged 45 to 64 increased their mortgage debt even if they didn’t move home.”
Senior homeowners are more inclined to believe they will work longer, which allows them to take out a bigger mortgage.
Evidence suggests that mortgage holders between 55 and 64 years old have longer working lives due to higher debts. The two stated that 29% of lump sum withdrawals from superannuation were used in 2017 to pay down mortgages, purchase new homes, or pay for home improvement projects. This was up from 25% four year earlier.
Many Australians are now at risk of losing their home. AHURI figures showed that half a million Australians aged 50 and older had lost their homes in the first decade of this century.
According to the two, “Growing indebtedness can increase after-housing costs poverty among older Australians” and make it more difficult to raise the age pension. “Late-in-life mortgage debt can also put homeowners at risk. A sudden change in health or employment could cause homeowners to lose their plans to pay down their mortgages.