Sydney’s debt trap – An increase in interest rates could lead to widespread mortgage stress

Sydney is being held hostage by a ticking debt bomb.

If interest rates rise just 1%, some suburbs will be so affected that mortgage distress will affect almost all houses in this area.

Data by Digital Finance Analytics, exclusive to , shows two-thirds of households in Edmondson Park in Sydney’s south-west are currently suffering mortgage stress.

If rates go up half a percent, this number will rise to 82.8 percentage of households.

All 408 Edmondson Park properties might have trouble making their monthly payment if rates go up full percentage.

Martin North, principal of DFA, stated that the pressure is building for a while.

“There are thousands of people with large mortgages, incomes are flat, there are the first signs of rates rising and, combined with the rising cost of living, this is something which is building into a bit of a crisis,” he told .

Sydney is the outer rim, where large blocks were built. Many households in Campbelltown and its surrounding areas are heavily mortgaged. Even young, well-off families in the northern and east suburbs, aswell as those nearing retirement on Central Coast, are feeling it.

“It is quite widespread across different parts of the city,” Mr North said.

“Everywhere you look you can see pockets of mortgage stress.

“In some cases we’ve now got pretty much every household in a particular postcode in stress which is not good news.”

Relatively new suburbs like The Ponds in Sydney’s north-west have households that are heavily committed.

But with wage growth flat, Mr North says it’s not surprising much of the stress is lifting in these areas.

“People who’ve bought relatively recently, and that’s particularly newly constructed suburbs, will have bought at pretty much the top of the market,” he said.

“They will have got very large mortgages, their income has not grown and they’re facing higher living costs.”

Current mortgage stress has affected 1634 homes in The Ponds (63.6%)

Rates rise by 50 basis point (half a percent) and the rate of 79.44% will rise. Up 100 basis points (1 percent), and 87 percent will be in stress.

Over half of all households reside in areas of high stress such as Glenwood and Stanhope Gardens.

Rates will rise 1 percentage point, and the 44.4 per cent of stress-prone properties in Mt Colah will rise to 94.8 percent.

In Milperra, the 50 percent of homes in stress will rise to 93.7 percent, in Quakers Hill it’ll go from 52.9 percent of homes to 87.8 percent and in Cremorne it’ll rise from 45.5 percent to 70.8 percent.

More than half of all households in Camden and The Oaks are suffering mortgage stress now but it’s not projected to rise significantly if rates rise.

It’s a similar situation in Cecil Hills, Hoxton Park and Thirlmere where stress levels will remain stable despite starting at a high base.

Many economists believe the Reserve Bank will keep the record-low official cash rates for 12-18 months.

However, banks are starting to raise their mortgage rates due to rising funding costs.

Six banks, including Suncorp, have raised interest rates since March, including ME Bank and ME Bank. The Bank Of Queensland provided the latest news.

Rate City’s Money Editor, Sally Tindall, said they won’t be the last.

“What we’re seeing is the cost of funding really squeezing the banks’ profit margins, at the moment, and for some banks that’s too much and they’ve hiked rates to recoup some of that money,” she said.

This means that other banks will follow the RBA’s lead regardless of whether they raise rates.