In Australia, a looming mortgage crunch hints at wider economic woes to come: ‘it’s never been this bad’

Australia isn’t awash with desperate for-sale signs, but mortgage stress is mounting and defaults may soon follow – especially if unemployment spikes

High inflation and interest rates have caused similar sorrow in the US and UK, but much of Asia has yet to feel the pain of soaring mortgage payments

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Residential and commercial properties are seen near the Opera House and Harbour Bridge in Sydney, one of Australia’s biggest – and priciest – housing markets. Photo: Shutterstock

Published: 9:30am, 8 Jul 2023

When 49-year-old father of three Chris* put a deposit down on his family’s dream home in the up-and-coming Sydney suburb of Edmondson Park in 2018, the interest rate on his mortgage was just over 3 per cent.

The A$800,000 (US$534,000) two-storey house was modest by the standards of Australia’s most expensive city – where median home prices regularly exceed A$1 million – and he found the mortgage payments on it to be manageable.

Fast-forward five years, however, and the mortgage rate has now doubled to 6 per cent, leaving Chris – who already works two jobs, including as a part-time property cleaner – looking for a third so he can make the additional A$600 (US$400) a month in payments. But even if he finds one, he says it won’t be enough to cover the cost, on top of their higher living costs, and he will be forced to dip into his savings.

“I am mostly angry with the government because they know the root cause of this issue: quantitative easing, printing free money … this creates a bubble for all asset classes,” Chris said. “With relatively low interest rates before, the average person took on more debt to buy houses … but the good times came to an end when the rates increased.”

An aerial view of houses in the Sydney suburb of Clovelly. Median home prices in Australia’s most expensive city regularly exceed A$1 million (US$668,000). Photo: Reuters

“Everything has gone up in price. This clearly affects the working person and not the millionaires who already own their houses.”

Australians with mortgages have now had to endure 12 rate increases over the past 14 months, eating into their financial reserves as they toil to rebuild their lives and livelihoods after Covid, while also battling post-pandemic inflation.