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Reason these Aussies are $671 worse off each month: ‘Short end of the stick’

Younger home loan borrowers haven’t had time to build up a strong savings buffer and are among the hardest hit, David Koch says.

Homeowners who bought property thinking interest rates would stay low for longer have been given the “short end of the stick”, new research has found.

Data from Compare the Market found Aussies who bought property at the peak of the market in early 2022 could be $671 worse off each month, compared to buyers who got in just three years earlier.

A Sydney homebuyer, for instance, who bought the average house at $1,127,723 in February 2022 and locked in a fixed rate of 2.2 per cent could be looking at monthly repayments that are $2,247 more expensive when their rate expires next year.

Property auction
If you bought your property at the market peak, you are hundreds of dollars worse off each month, according to new research. (Source: AAP)

Are you a mortgage holder with a story to share? Contact tamika.seeto@yahooinc.com

But someone who was able to buy a house for the median price of $780,672 just three years earlier, will have seen their repayments rise by $1,576 over that time period. That’s $671 less than buyers who bought at the peak. In addition, these borrowers will have benefited from a rise in equity.

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Former Reserve Bank (RBA) governor Philip Lowe came under fire for saying in 2021 that interest rates would likely not rise until 2024. However, as we are all now aware, the RBA started aggressively raising rates in May 2022. And after the November hike, the official cash rate now sits at 4.35 per cent.

Lowe has since apologised to the public and said, with the benefit of hindsight, he “would have chosen different language”.

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Tough pill to swallow

David Koch, Compare the Market’s economic director, said it was a tough pill to swallow for younger borrowers who were among the hardest hit and who hadn’t had time to build up strong savings buffers.

“If you bought your home in early 2022 under the pretence that interest rates would stay low for longer, you’ve now been lumped with the short end of the stick,” Koch said.

David Koch
David Koch said younger borrowers who bought at the peak of the market got the short end of the stick. (Source: Compare the Market)

"Meanwhile, a lot of mature Australians have missed this pain altogether after selling their properties at the peak and having reaped the benefits [of] more equity for years.

“A lot of mature Australians have been shielded from the rate rises, and it’s already widely believed that their spending drove inflation. It’s time policy-makers should be asking, ‘How could the pressure be more evenly spread’.”

What can homeowners do now?

Koch is urging Aussies being hit with higher mortgage repayments to see if they can refinance to a lower-rate home loan.

There is currently a 0.85 per cent difference between the highest and lowest rates on the market, Compare the Market found, meaning someone with a $750,000 loan could save up to $414 a month by making a switch.

“We urge people in mortgage pain to reduce the interest on their repayments as much as possible by shopping around for a better deal,” Koch said. “When every dollar counts, 2024 should be the year of the new lender.”

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