Key Points
- The Reserve Bank of Australia left Australia's official interest rate on hold at 4.1 per cent on Tuesday.
- According to Finder, 41 per cent of Australian mortgage holders struggled to pay their home loans in June.
- What are the options for people struggling to make their repayments?
As the cost of living continues to rise, many Australians are feeling the pressure of soaring mortgage repayments.
While the pause — the second since May last year — will be welcomed by many, twelve rate rises over the past 15 months have left many mortgage holders struggling to make their monthly repayments.
New research from market research company Roy Morgan found an estimated 1.43 million mortgage holders were 'at risk' of mortgage stress in the three months to May 2023.
This is the highest number of mortgage holders considered 'at risk' since May 2008.
And according to financial comparison site Finder's Consumer Sentiment Tracker, 41 per cent of Australian mortgage holders – equivalent to 1.35 million households – struggled to pay their home loan in June.
The RBA has put Australia's official interest rate on hold at 4.1 per cent. Source: SBS News
What should I do if I'm struggling to pay my mortgage?
If you are having trouble paying your mortgage, there are several important steps to take.
Noel Duffin, a financial counsellor with the Salvation Army, says anyone feeling financial pressure should complete a budget to understand their financial situation.
If you are struggling to make ends meet, Duffin recommends seeking support as soon as possible.
"Reach out as early as you can; when you're struggling to make payments, when you're under pressure, or worrying about money on an ongoing basis, that is the time to reach out," he said.
"That is the best advice I can give people, to reach out early - help is available, and free services are available."
Paul Bowley, a financial counsellor with Consumer Action Law Centre and National Debt Helpline, said it's important to speak to both your lender and a financial counsellor as soon as possible.
"The longer that you leave the situation where you're not meeting repayments, the less options you have available to you," he said.
"Some of the things you can look at might be extending the length of the loan so the repayments are lower, converting the loan to interest-only payments for a period of time, reducing payments to minimum monthly payments, or accessing money in a redraw account if you have that."
Bowley also suggests looking into government initiatives to reduce other expenses, such as utility relief grants.
He does not recommend taking out a personal loan or credit card to help make ends meet.
"If you've got to a point where you're reliant on a credit card or a personal loan, or the very dangerous buy now, pay later facilities to meet day-to-day living expenses ... then you are in trouble," he said.
What does a financial counsellor do?
Financial counselling is a free and confidential service offered by not-for-profit community organisations.
They can provide financial advice, help in negotiating with creditors, and refer you to other relevant services you might need.
Duffin advises anyone struggling to meet mortgage repayments to speak to a financial counsellor.
"A financial counsellor will assess a person's position in relation to their assets and liabilities and will help complete a picture of the person's financial position," he said.
"Once we have a clear picture, we can go through what options are available to the person going forward."
He says many people do not seek advice for mortgage support early enough.
"I strongly recommend that people reach out early, unfortunately in a lot of instances we are seeing people who didn't reach out early enough," he said.
Financial counsellors can be accessed through services including the National Debt Helpline and Moneycare.
What can my lender do if I am struggling with my mortgage?
Contacting your lender is one of the first things you should do if you're struggling to meet mortgage payments.
A spokesperson for the Australian Banking Association said banks are "very aware" of the challenges customers have been experiencing following the 12 rate rises.
"Banks strongly encourage any customers experiencing financial difficulty to reach out to access bank support services and to do so as early as possible," the spokesperson said.
"Bank support teams are also proactively communicating with those customers at risk.
"The ABA encourages those bank customers who are concerned about their financial situation to shop around to find the most suitable deal for their individual needs."
Reserve Bank governor Philip Lowe said keeping interest rates steady would give the board more time to assess the state of the economy. Source: AAP / Dan Himbrechts
If your lender refuses a hardship variation, they must give a reason why.
Duffin says banks' hardship departments will generally provide support for several months.
"People fall into hardship from time to time for various reasons, and (banks) understand that, so they will look at providing short to medium-term assistance," he said.
"That is usually three to six months, sometimes longer in exceptional circumstances."
How will this impact my credit score?
Bowley says missing mortgage repayments or entering into a financial hardship arrangement will be reflected on your credit score.
"The longer you leave a situation, the worse things become ... as soon as you start missing payments, those will be noted on your credit score for a period of two years it will show on your credit file," he said.
"If you do arrange and commence a hardship arrangement with your bank, that is also recorded on your credit score, and that information remains there for 12 months."
It will not necessarily stop you from being able to get finance in the future when you are in a more stable situation.
"It's not like a credit default on your name, it does drop off after one year for a hardship arrangement and two years for missed payments," he said.
"That information would be viewed, but it's not something to fear that it's going to be seen as negative.
"The reality is that there are a lot of people right now who are doing it tough, people are not alone in going through these things and hardship is something that is far more prevalent than what it used to be."
