'Mortgage cliff' is just hype

Local property expert and Investor Property’s lead researcher and analyst, Mal Cayley, recently spoke to My Weekly Preview about how the peak has passed for those moving to fixed rates.

“H​​ype around the ‘mortgage cliff’ is just that. The Australian property market is exceptionally sound – especially here on the Sunshine Coast.

When you look at the value of all loans in Australia and the value of all property, the national ‘Loan to Value Ratio’ sits around 25 percent, and 70 percent of those loans are held by the top 40 percent of income earners.

People who have mortgages can afford them. Also, two-thirds of homes don’t have a mortgage – they own outright or they rent. When you look at those that do have a mortgage, there is a plethora of data that showed the highest levels we have seen of borrowers paying more than their required loan repayments, and savings were put into offsets and redraw accounts.

The next is that according to RBA and bank data, more than 50 percent of borrowers on fixed interest rates are already off it. Yes, some tout big numbers of those on fixed rates of what is still to come, but it’s less than we have already seen … the peak has passed.

So with that fact, and that national home loan arrears remaining at 1 percent and unprecedented savings over recent years, there is no ‘cliff’. In fact, property prices are going up, not down. Keep in mind that this backdrop of fixed rates is never put in context, much less the fact that we have seen record equity in properties because of recent price rises, the lowest unemployment in 50 years, and the lowest level of supply in our history.

The latter is key here. We don’t have enough property for all the people who want to own or rent one. There is no historical correlation between interest rate rises and property price falls.

It’s good ‘clickbait’ to use words like ‘cliff’ but look at who is saying it and why. A more apt term for the property market now is ‘boom’ rather than a fall in the market, we are about to see prices take off again – likely over the next six months, with increasing certainty into 2024.

House prices are ‘resilient’ because we have failed to provide enough housing for our population. Interest rates may or may not rise over the coming months. Regardless, they are likely to be almost 2 percent lower by this time next year. That means the small percentage of people who will struggle coming out of fixed rates, due to being locked in mortgage prison by APRA won’t feel the pain for long.

Doomsayers waiting for prices to fall as a result of interest rate rises or the ‘mortgage cliff’ are going to be left red-faced yet again.”

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