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Interest rate rises hurt even the best suburbs
Make no mistake: interest rate rises hurt some of Sydney’s most aspirational suburbs on the lower north shore, east, northern beaches and inner west.
While most economists are correct saying the quarter per cent rate rise won’t have much impact on the overall performance of Sydney’s already flagging property market – it will certainly hurt the people that Wizard founder Mark Bouris says have “aspirational debt”, and the suburbs they live in.
“There is a band of people out there borrowing $500,000 to $1 million … and an interest rate rise has a far bigger affect on them than someone with a $200,000 mortgage,” the chairman of Australian Financial Investments Group says.
“We all know those people and they live in places like the eastern suburbs and drive a BMW but at the end of the day the rate rise on their $800,000 mortgage has a bigger impact on their net income than the person who lives in Ashfield with a $200,000 mortgage.”
Australian Property Monitors research director Louis Christopher says suburbs with a median house price of between $900,000 and $1.2 million will be the hardest hit – and he is predicting house price falls of up to 8 per cent if another predicted interest rate increase happens in April or May.
“It’s going to be pretty much all of the lower north shore, parts of the city and east, the expensive parts of the inner west and the northern beaches that will be hit,” he says.
“It’s those areas that are just out of reach of the middle income earner that a lot of people stretched to get themselves into.”
Landmark White senior research manager Vanessa Rader agrees, saying the higher end suburbs that are at risk of a correction in the event of small interest rate rises.
There are no statistics outlining the suburb-by-suburb average mortgage, but Aussie Home Loans says the 2004 average loan in NSW was $253,000, compared to a nationwide average of $204,000.
Wizard has calculated average loan amounts in different branch areas, finding Bondi has one of the highest average loan amounts of $362,000. Cronulla had a 2004 average of $318,000, Dee Why $298,000, Baulkham Hills $305,000 and Parramatta $222,000.
“But averages mean absolutely nothing, because the mortgage someone has on a place at the back of Bondi is completely different to the mortgage people have on the beachfront,” Bouris says.
“That’s why the interest rate rises won’t hurt the average market, it’s going to hurt in specifics and specifically those people with large mortgages.”
Christopher does point out that “true prestige suburbs” such as Point Piper and Palm Beach will be immune to the effect of interest rate rises “because people there simply pay cash – they don’t have a mortgage”.
Aussie Home Loans mortgage adviser Lindsay Rogers says borrowers can access a $1 million mortgage with a combined income of around $150,000 a year.
“It’s certainly not unusual in the lower north shore and eastern suburbs for people to have $1million mortgages,” he says.
HIGHER AND HIGHER MORTGAGE REPAYMENTS:
Loan amount payments at 7.07% payments at 7.57%
- $400,000 $2680 (616pw) $2816 ($647pw)
- $500,000 $3350 (769pw) $3520 (809pw)
- $600,000 $4020 (923pw) $4224 (971pw)
- $700,000 $4690 (1078pw) $4928 (1133pw)
- $800,000 $5360(1232pw) $5632 (1294pw)
- $900,000 $6030 (1386pw) $6336 (1456pw)
- $1,000,000 $6700 (1540pw) $7040 (1618pw)
Assumes 30-year loan term at 7.07% and 7.57%, calculations done on yourmortgage.com.au calculators