Speaking on a recent episode of The smart real estate investment fairPeter White AM, Managing Director of the Finance Brokers Association of Australia (FBAA), urged investors to get a good idea of their tolerance for rising interest rates.
“Our recent research on mortgages and affordable rents in Australia has shown that people who pay a mortgage and people who pay rent cannot afford a raise of $ 300 per month – 57.5% of people cannot afford a raise of $ 300 per month. not afford a $ 300 per month increase in their rent, or a 1% increase on the average home loan, ”he explained.
And according to the FBAA report, nearly half of all Australians (47%) would struggle financially if their housing payment increased by $ 200 per month, or $ 50 per week.
White calls the data “critical” and urged investors to use the information to plan ahead for rate hikes.
“Interest rates will move. You can see the banks raising their fixed rates; they plan to move rates in the future. And that future may be closer than we think and may be out of step with everything the RBA is doing from a cash rate standpoint, ”foreshadowed Mr. White.
“But when that does happen, what we have to watch as investors and people who borrow money is that there is a tolerance out there that sets the swing going, if we’re not careful. “, did he declare. This is when the country could find itself with a growing number of people “simply unable to make or keep up with the repayments they have already agreed to in advance.”
Adding to this risk, White noted, APRA’s recent move to raise banks’ expectations for loan sustainability could make it more difficult for people to refinance, giving investors fewer remedial methods if their repayment abilities become stressed.
“We have to look at how it all plays out, and I think this is something that I would ask owners and investors to be sensitive to in their planning,” he advised, acknowledging that some might struggle. to predict the worst. – case scenario.
“It’s not today. I know it’s not today, but if you are considering a three or five year strategy for buying a property and selling it, or a longer term 10 year portfolio investment, you have to look at how these things work. unfold, “he said.
Ideally, White said, this additional planning won’t be necessary.
“If we are lucky it will be okay,” he said. But in his experience, having a little forethought could prevent things from moving quickly south.
Mr White has worked in the mortgage industry for 43 years and even he was surprised by the organization’s research revealing how close the point of financial breaking was for many Australians.
“This tolerance is much lower than I would expect.”
You can listen to the full conversation with Peter White here.
Interest is the amount of money charged by a lender or financial institution for a loan, which is calculated as the percentage of the principal amount paid over the life of the loan.