Survey: Mortgage rate change would place 5pc of borrowers in financial hardship

5pc of survey respondents said they would need financial assistance if rates went up. Photo: Shutterstock
5pc of survey respondents said they would need financial assistance if rates went up. Photo: Shutterstock

One in 20 Australians would face financial hardship if they were hit by an unexpected rise in mortgage rates, according to a new survey, though regional mortgagees may be in a better position than their city counterparts.

The finding was contained in new data compiled by comparison website Finder.

The nationally representative survey of 597 home loan customers revealed that one in 20, or 5 per cent, would require financial assistance if their home loan rate went up out of cycle, a term used to describe when lenders raise rates when the Reserve Bank of Australia hasn't.

The survey results suggest that homeowners in metropolitan areas are more susceptible to changes in mortgage rates, with 5 per cent of city respondents indicating they'd face financial hardship with a change in rates compared to 4 per cent in regional areas.

Regional respondents were less likely to take any action if faced with a rate rise, such as contacting their lender for a better rate or switching to another lender, with 26 per cent saying they would do nothing compared to 16 per cent of city respondents.

Finder home loan editor Sarah Megginson said that the pandemic had left many Australians "debt vulnerable".

"Over the past 18 months, so many Aussies have seen their financial reserves drained," she said.

"There's a real chance that further economic shock could lead to more people falling behind on their mortgage payments."

What should you do if you're having trouble meeting your mortgage payments?

Uniting financial counselor Rob Benton, who works on the National Debt Helpline service, said that consistently low rates, which are predicted to last for some time, meant an out of cycle rate rise was less likely to push mortgage holders into financial stress than other factors.

"In terms of the rise of the interest rate cycle, we haven't seen that [rises] in quite a long time - we've seen years of downward pressure," said Mr Benton, who primarily works with those based in NSW.

However, a loss of income or employment resulting from the NSW lockdown had seen an uptick in calls to the National Debt Helpline, with many callers already facing mortgage stress, sometimes as a result of having yet to recover from 2020's lockdown.

"In the current environment we've seen a magnification of people enduring mortgage stress," he said.

"We're seeing a bit of pressure, we've had people who've gone through the six months last year and now they're going through it again," he said.

Anyone having difficulty servicing their home loan should contact their lending institution directly or call the National Debt Helpline.

"Ultimately it's much better for a borrower to approach their lender if they have a problem with their repayments, because there is the scope to reduce the payment or vary the repayment or have a payment pause or have incorporated on the end of the mortgage," he advised.

"All banks have a pretty definite and evolved attitude in relation to hardship - its better for people who experience hardship to be encouraged to contact the bank as soon as possible," he added.

This story Survey: Mortgage rate change would place 5pc of borrowers in financial hardship first appeared on Illawarra Mercury.