Over 20% of mortgagors switched to interest-only

A survey released by Finder has revealed that one in five (21 per cent) of mortgage holders have switched to interest-only repayments over the past two years.

The research took responses of 1,062 respondents, 346 of whom were mortgage holders. According to Finder, the results are equivalent to 693,000 people making a change in order to pay the bare minimum on their loan.

The survey found that 6 per cent of borrowers (equivalent to 198,000 people) are currently servicing interest-only loans in order to avoid falling behind on their mortgage repayments.

Home loans expert at Finder, Richard Whitten, said Aussie households are “in survival mode”.

“Such a large portion of people’s earnings are allocated to their mortgage and spare cash has been extinguished,” Whitten said.

“A growing number of Aussies are struggling to make their mortgage payments due to cost of living pressures and can’t continue on the path they’re on.”

The rate of mortgage holders missing repayments is climbing

According to an analysis by Finder of the Australian Prudential Regulation Authority’s (APRA) data, $14.6 billion worth of home loans were 30–89 days past due as of March 2024, up 65 per cent on the $8.8 billion recorded in December 2022.

Indeed, arrears have been rising in recent quarters, with S&P Global Ratings’ (S&P) RMBS Performance Watch: Australia quarterly report (ended 31 March 2024) revealing that RMBS prime mortgage arrears rose to 1 per cent, up from 9.5 per cent the year prior and from a historical low of 0.58 per cent.

This also represented a lift in arrears from 0.97 per cent during the quarter ended 31 December 2023.

Furthermore, the Council of Financial Regulators (CFR) said during its regular quarterly meeting on 7 June 2024 that it continues to “closely monitor” risks to the country’s financial system from lending to households and businesses.

According to the CFR, while arrears have risen, the financial risks “remain contained” as the majority of borrowers have continued to honour their debt repayments.

However, the CFR acknowledged the increasing number of applications for hardship notices as the number of borrowers missing repayments increases (albeit from low levels).

Commenting on the climbing number of arrears, Whitten urged struggling mortgage holders to seek financial hardship assistance from their lenders.

“Banks have a responsibility to support customers experiencing financial stress, so put shame aside and speak up if you are in that position to ease the burden until you can sort out serviceability,” Whitten said.

“The start of a new financial year is a great time to do a mortgage audit and compare whether there are better deals around.

“Eliminate wasteful spending and destructive debt and make sure your habits and decisions align with your future wealth creation goals.”

[RELATED: More falling behind on repayments despite ‘contained’ lending risks]

Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: This email address is being protected from spambots. You need JavaScript enabled to view it.