Mortgage stress

PHOTO: Mortgage stress. FILE

Tara Higginson pulls no punches when asked what will happen if interest rates rise on Tuesday, off the back of soaring inflation.

“I’m up shit creek”, says the single mother of four who, in the midst of the pandemic, took out an interest-only variable loan of $510,000 – more than six times her income.

“I don’t have a second income to be able to buffer that fluctuation when it [interest rates] increase,” she says.

“There would have to be cutbacks.”

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And rate rises are likely to happen at the same time as house prices, nationally, fall, according to CoreLogic’s research director, Tim Lawless.

CoreLogic data to the end of April shows that housing values are still rising at the national level, but a 0.6 per cent monthly rate of growth is the lowest reading since October 2020.

Sydney housing values recorded the third consecutive month-on-month decline, down 0.2 per cent.

Melbourne values were flat (-0.04 per cent), but the city recorded house price falls for three of the past five months.

Hobart was also down, by 0.3 per cent, but most other state capitals recorded gains above 1 per cent.

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“Stretched housing affordability, higher fixed-term mortgage rates, a rise in listing numbers across some cities and lower consumer sentiment have been weighing on housing conditions over the past year,” Mr Lawless says.

Graph showing state by state falls
CoreLogic house price data to April 30, 2022.(Supplied: CoreLogic)

‘Really scared to think about’ rate rises

To build her dream home in Logan Reserve, in the outer suburbs of Brisbane, Ms Higginson took out a big home loan and the rest was funded by the $25,000 HomeBuilder grant and first home buyer grants of about $15,000. She also pulled $20,000 out of her superannuation.

She currently pays a variable interest rate of 2.98 per cent, interest-only, and says if rates rise even slightly, she will have to cut back on her youngest daughter’s education and take out a second job.

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“And I hope it never comes to it. But if it [rates] start to increase, which we know it will, I need to find a second source of income. It’s something I’m really scared to actually think about.”

Tara helps her daughters with their school at kitchen table in Logan Reserve home.
Tara Higginson says if rates rise and she hits financial stress, the last thing she would sacrifice is her children’s education.(ABC News: MIchael Lloyd)

She says if she can’t bring in extra income, she could be forced to sell.

“That would like, kill me, to say goodbye to it.

“I know, a lot of our neighbours are currently looking at refinancing and using the equity because the price of their house and the valuations have gone up so much that they can now look at fixing interest rates and things like that, just to give them a bit more security.

“And I honestly don’t think I could do that. I don’t think I could approach a lender and say, ‘Hey, can I try and fix my loan for five years at the current low rates? Because of the changes [tighter lending standards] that have happened, I wouldn’t get approved again.”

Blue and white 4-bedroom house.
Tara Higginson built her dream home in Brisbane’s outer suburbs but fears she may be at risk of losing it if interest rates go up.(ABC News: Michael Lloyd)

Ms Higginson isn’t alone in facing the prospect of financial stress.



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