With interest rates expected to begin rising while the cost of living continues soaring, a new survey from financial information platform Money.com.au has revealed just how prepared Australians are to meet their mortgage repayment obligations. The good news is that 80 per cent of respondents say they have a buffer in their home loans to meet the coming rate rises.
The finding was derived from a survey of an independent panel of 1018 Australian mortgage holders, commissioned by Money.com.au. The survey found that around 14 per cent of respondents have more than $100,000 in funds in a mortgage offset account, redraw facility or savings account; one in four (28 per cent) had more than $50,000, and 41 per cent had more than $20,000. The full survey results, with age and State breakdowns, can be found here.
Licensed financial advisor and Money.com.au spokesperson Helen Baker says: “The research also found that 20 per cent of borrowers had no buffer at all. There are many circumstances that might have left borrowers in this situation. Jobs in some sectors were impacted heavily by covid and some borrowers might have been living on their savings while getting back on their feet. A small proportion might not be proactive savers. Others might have used their savings buffer to clear some debt rather than borrow a higher amount and retain a buffer on a new property. Older borrowers may have also used their buffer to re-invest in property while interest rates were low.”
Younger borrowers have more in their offset accounts
Money.com.au found that a larger proportion of older mortgage holders have no buffer. One in four (28) per cent of over 50s, compared with 9 per cent of 18-34-year-olds and compared with 24 per cent of 35-49-year olds.
Helen says: “Older borrowers can access their super, which translates to a type of savings buffer, and a bigger proportion are also closer to paying off their mortgages, reducing their risk around loan repayments. Conversely, younger borrowers have decades in repayments ahead of them, with potential kids and other financial commitments on the horizon – hence their need to have savings in place.”
Money.com.au also asked respondents if their financial buffer will help them cope with interest rate rises. The good news is that the majority (84 per cent) revealed they would still be able to make loan repayments with a rate rise. Specifically, two thirds (63 per cent) said they can meet repayments with at least a 0.5 per cent rise, half (49 per cent) with at least a 0.75 per cent rise, and one third (34 per cent) with rises of 2 per cent or more.
Older borrowers can better cope with rate rises
The results also revealed that the older the borrower, the more easily they can make repayments against higher interest rates: 37 per cent of over 55s said they can make repayments if rates rise by 2 per cent or more, compared with 25 per cent of 40-54-year olds and 20 per cent of 25-39-year olds.
Helen says: “The research suggests a strong proportion of Australians are financially savvy and may have already been proactively preparing for expected increases in interest rates and the cost of living during the life of their home loan, as well as future changes in their personal circumstances that would impact their income, such as starting a family. Many may have known that the era of cheap money would eventually come to an end.
“A mortgage is one of the biggest commitments and ensuring you have some bulk savings reducing your interest is an excellent first step. Getting the financing right on your mortgage is another important strategy, and there are lots of ways that borrowers are structuring their financing to suit their current and future financial circumstances, as well as future rate rises.”
Helen Baker shares ways that borrowers are reducing the impact of rate rises:
The full survey results, including across age groups and States, can be found here.
We're giving you FREE access to find out which stocks our Switzer Report experts think have the highest upside in October and beyond!