KEY POINTS:
- The RBA is widely expected to increase the cash rate on Tuesday, paving the way for more interest rate increases.
- It comes as a recent poll found almost 25 per cent of mortgage holders were 'at risk' of mortgage stress.
- Here's what help is available if you're struggling to meet repayments.
Another rate rise looks all but certain today, and some mortgage holders may be wondering: what can I do if I find myself struggling to meet my repayments?
The Reserve Bank of Australia (RBA) has made nine consecutive cash rate increases since May last year, with the figure that influences how banks set their interest rates — up from .
That figure is now expected to rise again on Tuesday. Indeed, 39 of 42 experts and economists surveyed by financial comparison website Finder on Friday believe an increase will come after the RBA's board meeting. A majority (36) predict a quarter of a percentage point rise, which would bring the cash rate to 3.6 per cent.
As rates have climbed, there are some signs that mortgage stress, widely accepted as when 30 per cent of a household's pre-tax income is being spent on mortgage repayments, is on the rise. Roy Morgan's found 24.9 per cent (an estimated 1.19 million mortgage holders) were 'at risk' in the three months to January. That's the highest figure since June 2012, but below the 35.6 per cent high (an estimated 1.455 million mortgage holders) seen during the global financial crisis in early 2009, according to the research firm.
If you find yourself struggling to meet your mortgage repayments, here's what you need to know.
What if I'm experiencing short-term hardship?
Banks offer hardship assistance to those where an event may have temporarily negatively impacted their cash flow.
This may be due to unemployment, serious illness or injury, or the death of a loved one that has meant a mortgage holder is unable to work.
If you find yourself in such a position, it's important to get in touch with your lender as soon as possible, said Associate Professor Andrew Grant, a finance lecturer at the University of Sydney.
"With sufficient evidence, most financial institutions will be happy to offer assistance," Associate Professor Grant said. "They don't want to lose you as a customer."
The Reserve Bank has been increasing the cash rate to try to reduce inflation. Source: AAP / Bianca De Marchi
That's why Claude Von Arx, a financial counsellor working at the Consumer Action Law Centre on the National Debt Helpline, said he pushes lenders to recapitalise the deferred interest.
That means the loan is restructured to include the deferred interest, which he said may increase future repayments slightly but means the mortgage holder does not have to pay a potentially hefty sum when their 'holiday' ends.
"That's a much better outcome than deferment because deferment means that when you are expected to pay the interest arrears as well as repayments in a very short period of time, and it can often put people in a worse position."
Mr Von Arx said another option you could discuss with your bank is moving to interest-only for a period of time.
"That can help buy a mortgage holder some time as it means there's less money they have to come up with," he said. "But there are longer-term expenses to that because you're not making any inroads to the principal component of your mortgage unless you rapidly put more money in later on."
What about the longer term?
Mr Von Arx said banks will often be reluctant to offer hardship assistance to those who are struggling to meet repayments purely because of increases due to interest rate rises.
"They might provide assistance for a month or two so the customer can work out what they need to do long-term," he said. "All customers have a right to ask for hardship assistance, but all banks have a right to refuse it."
Mr Von Arx said financial counselling groups, such as the National Debt Helpline, are there to help people weather financial storms. He said they can help clients identify savings in their household budgets, give them advice on how to negotiate with their lenders, and help manage their debts.
Pushing a lender for a better mortgage rate is something Mr Von Arx encourages everyone to do. If they refuse to budge, he said it may be and seeking advice from a mortgage broker.
Associate Professor Grant said those who feel they need to reduce their payments over the long term could look at extending their mortgage term through refinancing, but that would ultimately mean paying more interest over the life of the loan and is usually only an option for those who have been making repayments for a while and built up some equity.
Mr Von Arx said he tells his clients it's important to have a "plan B" if other relief options don't work. That may involve selling the property or accessing superannuation.
"We always say it's much better to sell [your house] yourself than get the bank to do it for you, as you're in control of the process," he said.
"If their house becomes under imminent foreclosure risk down the track, we talk about what steps you can take there; accessing superannuation on compassionate grounds could be an option," he added.
When will the rate hikes stop?
The RBA has been lifting the cash rate in a bid to curb consumer spending and bring down inflation, Although that figure was just below the 8 per cent the central bank had forecast, it was the highest annual increase since 1990.
In its February Statement on Monetary Policy, the RBA said it predicts inflation will fall to 4.75 per cent over the course of this year, and to around 3 per cent by mid-2025. It wants to see inflation return to its 2-3 per cent target band
Three of the big four banks — ANZ, NAB and Westpac — predict the cash rate will peak at 4.1 per cent in May, while the Commonwealth Bank forecasts it will hit 3.85 per cent by the middle of the year.
The Commonwealth Bank anticipates the RBA will make its first rate cut late this year, while NAB and Westpac forecast it will happen early next year.
ANZ predicts there will be a cut in November 2024.
Disclaimer: This article is general information. Please see a professional if you need financial advice.
