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Unpacking the “mortgage cliff” myth
mortgage cliff

Many of the media headlines of late have been dedicated to the supposedly imminent mortgage cliff but I believe time will show us it is nothing more than a myth.

Seemingly the record low interest rates on offer during the COVID19 pandemic are going to cause our property market to fall in heap at any moment now that rates are higher than they were.

Of course, the major issue with this scare mongering is the fact that the majority of mortgage holders were already property owners prior to this period, which meant that they, like me, just enjoyed the low-rate ride while it lasted, and got ahead on their mortgage payments.

Sure, there may be some inexperienced buyers who purchased at the peak of the boom, probably paid and borrowed too much, and may now be starting to worry about their ability to keep up with their mortgage repayments.

However, according to the ABS, annual CPI inflation fell again in the March quarter.

Annual inflation fell to 7 per cent, down from the 30 year-high of 7.8 per cent in the December quarter.

While prices continued to rise for most goods and services, these rises have moderated in the most recent quarter, resulting in lower annual inflation, according to official statistics.

Trimmed mean annual inflation, which excludes large price rises and falls and is the preferred measure using by the Reserve Bank was 6.6 per cent in the March quarter, down from 6.9 per cent in December, and below the expectations of economists.

Of course, this means that we have passed the peak of inflation and the rising interest cycle is likely to have finished as well.

Mortgage debt facts

According to CoreLogic, the RBA reported just under 70 per cent of outstanding mortgage debt was on variable rates in the February Statement of Monetary Policy this year, but what does this mean?

Between April 2022 and December 2022, average outstanding variable mortgage rates lifted 263 basis points, while the official cash rate had lifted 300 basis points.

This means that based on average outstanding variable rates with a 30-year loan term and average loan size, a loan secured in April 2022 would see mortgage repayments rise $935 per month by the end of the year.

In other words, the majority of outstanding mortgage debt has already been subject to steep rate rises, according to CoreLogic.So, if the mortgage cliff was going to happen, it should have already been doing so last year, but housing market measures show continued resilience in mortgaged households, partly because the volume of new advertised properties hitting the market for sale nationally remains contained, trending 14.8 per cent below the previous five-year average. 

On top of that there are no obvious signs of distress in the housing market from a data perspective.

The most recent data on non-performing loans, which is only produced quarterly by APRA, showed that only one per cent of home loans were at least 30 days past due and that percentage was actually falling.

Financial buffer

Our interest rates in Australia are lower than many other countries, plus we are starting to experience moderation in utility prices and cost of living pressures at the same time as having record low unemployment.

All of these factors mean that mortgage holders are well placed to manage increased mortgage repayments.

The cohort that may be under the most pressure are recent first home buyers who may have got caught up in the moment when property prices were peaking.

However, according to, the average national first home buyer loan size in February this year was $479,260, which is an affordable level and would have been taken out when interest rates were at their highest level in more than a decade as well.In fact, first-time buyers have hardly been overspending over the past few years, given their average home loan size was about $425,000 at the start of the pandemic.

Essentially, this means that first home buyers have kept to their budgets, but also have been constrained by their borrowing capacity over the past three years, which provides a strong buffer against higher interest rates.


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