‘We’re heading into uncharted territory’: Expected rate rise will test borrowers’ limits

Homeowners in recent years have been stress tested for an extra 2.5 to 3 percentage points above record low rates.

But with the interest rate already up 2.5 percentage points since May, any further rate hikes will breach all previous stress tests applied to many recent borrowers. Home loan borrowers were stressed tested to pay 2.5 percentage above their mortgage rates until late last year.“The very recent borrowers are the ones who have not been able to build up buffers. They’re the most vulnerable cohort, and they’re also the one who bought property at its highest prices,” Aird said.

He said mortgage stress from rising rates will be compounded by high inflation on essential goods and services as well as the negative wealth effective felt from falling property prices. He said while households were already cutting down on spending, there would more distressed property sales if there were additional shocks such as job losses.

TawarRazaghi Uncharted territory? I would have thought we were going back to normal rates.

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