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As fixed-rate mortgages near their expiration dates between June and October 2023, households with highly leveraged loans are at a crossroads. The shift from 2% fixed rates to around 6% is raising the question: how many can handle the increase, and for how long? With living costs rising and mortgage payments surging, many households face the challenge of making ends meet.

But what does this mean for the property market, and how can you prepare for rising interest rates while seizing opportunities in this evolving landscape?

Understanding the "Mortgage Cliff"

Many borrowers secured low-rate fixed mortgages during the pandemic, now needing thousands extra each month to cover repayments. This predicament, known as the "mortgage cliff," traps borrowers in higher interest rates due to the inability to refinance.

Volume of Expiring Fixed Rate Mortgages

Over 880,000 fixed-rate mortgages are set to expire in 2023, and another 450,000 in 2024. The surge begins in the June quarter, peaking at over 222,800 fixed rate mortgages. Those who purchased property recently or have high LVRs may face negative equity.

Impact on Borrowers

As interest rates jump from 2.5% to 6%, mortgage repayments will rise significantly. For instance, households with a $500,000 loan may see an extra $996 per month. Economic and financial experts are divided on households' ability to cope with this escalation, given the era of cheap money.

Property Market Outlook

While mortgage pain is growing, there's no significant evidence of forced selling yet. Government policies, tax debates, and investor dynamics are shaping the market's path. The mortgage delinquency rate and distressed sales are key indicators to watch.

Seizing Opportunities

Amid these changes, opportunities emerge for savvy buyers:

  • Rents and prices will rise due to housing shortage.

  • Leverage equity to invest in property while rates pause.

  • Choose properties catering to high-quality tenants.

  • Look beyond headlines and explore diverse sub-markets.

  • Develop a property portfolio that combines yield and growth.

As Australia navigates this dynamic economic landscape, informed choices will be crucial in building a strong property portfolio.

Donie Collins


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