Revealed: Sydney suburbs where mortgage stress is hitting hardest

Families who bought homes while rates were at record lows are now struggling. Picture: Max Mason-Hubers

Homeowners who splurged on properties in outer Sydney during the Covid property boom are hitting breaking point after years of elevated loan costs and many are missing vital repayments.

Credit ratings data from S&P revealed homeowners were most frequently falling behind on their loans in Sydney’s southwest and The Central Coast – despite recent interest rate cuts.

The proportion of homeowners in mortgage arrears in some suburbs within these regions climbed to more than double the state average in June, with NSW leading the country for mortgage arrears.

It’s understood the majority of those in arrears purchased homes within the last five years – many during the Covid years when interest rates were at a record lows.

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Casula, just south of Liverpool, had the highest proportion of arrears, with about one in 40 mortgaged homeowners falling behind on their repayments, according to the S&P data.

Experts said this amount of missed repayments in the area and surrounding suburbs was significant as it was well above the annual volume of property sales in the area.

This was a major risk for the local market as a sudden flood of forced sales from these distressed borrowers could fuel an oversupply of property sales, which would drag down housing values.

Elevated levels of financial stress in a tightly concentrated area could also make it harder for local homeowners to refinance their loans at competitive rates as banks could view the postcode as higher risk.

Other areas with a high proportion of arrears were Penrith area suburb Cambridge Gardens (2.49 per cent), Bateau Bay on The Central Coast (2.02 per cent) and Berkshire Park within the Hawkesbury region (1.99 per cent).

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Homeowners facing mortgage stress often felt pressured to bid more during pressure cooker auctions.

The proportion of mortgage homeowners in arrears across the state was at just over 1 per cent – the highest in the country.

Real Credit Repairers analysis of ABS lending data revealed the hardest-hit suburbs were in outer-metro growth corridors. These were areas where families bought at the edge of what they could afford when rates were at record lows.

“Australians took on larger mortgages during the boom years, but with the cost of living rising faster than wages, even a single missed payment can snowball into long-term stress,” the report said.

Real Credit Repairers director Dennis Cowper said new buyers were stretching themselves further than ever to get into the market.

“The average new home loan has blown out to over $800,000 in NSW … even with low interest rates, those balances are enormous and leave households exposed if conditions change,” he said.

Mortgage stress has remained elevated despite RBA governor Michele Bullock announcing interest rate cuts in February, May and July. Picture: Christian Gilles

“Households are shuffling debt just to stay afloat – refinancing volumes are at record highs and personal loan commitments have doubled to $9 billion a quarter. That’s a clear sign people are leaning on unsecured credit to cover the basics.”

Research from comparison group Finder.com.au revealed one in seven mortgaged households in Australia were spending more than 66 per cent of their income on repayments.

Finder home loans expert Richard Whitten said these homeowners needed more than a rate cut to get out of financial hardship.

“The loan to income ratio has blown way out with millions teetering on the edge due to mortgage stress,” he said. “Unexpected costs could spell serious financial trouble for many homeowners.”

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