- In short: Australians are refinancing their mortgages "at a rate never before seen" to hold on to their properties as interest rates continue to climb.
- What's next? Banks are preparing for a period of "significant defaults" and are actively reaching out to customers they have concerns about.
In a desperate attempt to keep her home, Katy says she has made a mortgage repayment worth as little as $5.
"It's just to show that I'm making an effort to keep my house," she said.
"I'll put money on when I can."
So far, depositing anything from a lump sum of $4,000 to $150 to $20 has kept the Commonwealth Bank at bay.
But the continuous rise in interest rates has made the Hobart mother fall further into arrears.
Around seven years ago, Katy built a house on Hobart's eastern shore for about $250,000. She later used the equity to buy a small $150,000 shack on the Tasman Peninsula.
Back then, she held three jobs. She was a youth worker, a mental health worker and a drug and alcohol counsellor.
Two years ago, her life took a traumatic turn. Her relationship broke down, she faced mental health issues and started using drugs "to cope", which only made things worse, she said.
"I didn't feel it was fair on me to support people when I was struggling myself. That's when I started doing escort work," she said.
"I needed to survive."
She says she has quit both drugs and escort work. And while letting the bank in on her struggles was intimidating, Katy said they had been very supportive.
"They've been really, really good, thankfully," she said.
"By keeping them up to date, I think that's how I've been able to save my house."
She said the bank had advised her to make a $7,000 payment as soon as she could, then work out a repayment plan when she secured full-time employment.
Katy wants to amicably divide finances with her ex-partner, hoping to hold on to the Hobart house.
"I worry about my kids, how they're going to afford houses in the future," she said.
"It's stability for them.
"I don't want the bank to repossess the house, then I walk away with nothing."
The Australian Banking Association (ABA) said repossessing someone's home was the "absolute last resort" for a bank.
"It is in the commercial interest of banks to keep customers in their home, and to give them a reasonable period of time to get back on their feet and to be able to manage their payments," chief executive Anna Bligh said.
"While we're seeing high-interest rates now, what banks will tell you is that the things that really put people over the edge are losing your job, having a relationship breakdown — so there's only one income coming into the family — or having a very serious prolonged health issue that prevents you from working for a period."
That is not to say banks were not preparing for a period of "significant defaults" if interest rates kept rising, Ms Bligh said.
From missing a payment to losing a property
Ms Bligh said it happened "all the time" that even the most reliable of customers missed a payment for various reasons.
Three strikes, however, and their loans would be classified as being in default, prompting banks to contact customers.
"Banks right now are sort of talking to customers, working with them as they're getting into a bit of trouble," Ms Bligh said.
"Right now, Australians — even though it's really hard for them — they are paying their mortgages and their other loans, but banks aren't complacent about that.
"They are anticipating that things will deteriorate over the next six months, and they're ready with some very practical tools to help those customers."
Ms Bligh said customers were already refinancing their mortgages "at a rate never before seen" to get a better deal.
"We've got about close to 2,500 Australians refinancing their mortgage to get a cheaper interest rate — either with their own bank or with another bank — every single working day at the moment," she said.
"That's certainly the very first thing that anyone who's struggling should be talking to their bank about."
Ms Bligh said other options included extending the length of a loan, moving to interest-only payments, or even looking at deferring payments for a while. But beware of the latter, she says.
"There are circumstances where deferring payments gets to a point where the customer starts to lose equity in the property, and that is not in the financial interest of a customer," she said.
"That is the point at which difficult conversations [about] maybe selling the property and going to something cheaper and more affordable, that's when that might occur."
Ms Bligh said banks would monitor over six to 18 months how customers they had concerns about were tracking before considering drastic measures.
"If it comes to the point where you really need to think about selling the asset, the bank then has a legislative requirement to put in writing and give you notice of their intention to do that," she said.
"You have options to appeal that decision."
People selling their investment properties
The Real Estate Institute of Australia said investment properties were the first to drop off the portfolio of someone struggling to meet their lending commitments.
"Most landlords have got two mortgages — the house they live in, and the house that they've invested in — and we are finding a higher proportion of landlords currently selling because they just can't manage two lots of repayments," deputy president Leanne Pilkington said.
"Across a number of our members, we're seeing 10 to 15 per cent of their landlords selling. It used to be below 10 per cent.
"People are getting ahead of it. If they know they're starting to struggle, they're selling their property before the banks have to foreclose."
University of Tasmania researcher Maria Belen Yanotti said there had been a small increase in the number of customers whose mortgages were in arrears.
"The number of arrears between 30 to 90 days has increased from 0.34 per cent of all mortgages to 0.42 per cent," she said.
"It's something to be looking out for, but it's still very, very small."
Dr Yanotti said with the rapid increase in house prices throughout COVID-19, many people still had high equity in their properties.
"Which means if you sell your property now, then potentially you can pay the mortgage that you have and be left with something," she said.
"The hard thing about that is that getting into the market again, buying again, it's really hard."
She said between high inflation and high interest rates, the latter was "the least evil".
"Inflation is a much bigger threat to all society — regardless of high income, low income, wealthy, not wealthy," she said.
"People with lower income spend most of their income on goods and essentials, on basic things, and don't have margin to save.
"If cost of living and inflation keep going up, they won't just not be able to afford their repayments, they won't be able to afford food, transport, fuel — nothing."
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