Mortgage Struggles in Sydney’s Western Suburbs and the Illawarra
The pressures of rising interest rates and the increased cost of living have hit home owners hard, especially in Sydney’s western suburbs and the Illawarra region. According to Moody’s Ratings, as many as one in 30 households in these areas have fallen behind on their mortgage repayments, highlighting the financial strain many are facing.
Rising Mortgage Delinquencies
The latest data from November 2023 reveals that 3.53% of home loans in Abbotsbury, located in Sydney’s south-west, are at least 30 days in arrears. This is one of the highest delinquency rates in the region. Fairfield and Bligh Park are also seeing significant numbers, with delinquency rates of 3.16%. Other affected areas include Punchbowl, Bankstown, and Airds, with delinquency rates ranging from 2.7% to 2.9%. Even in the Illawarra, Albion Park and Avondale are experiencing similar financial difficulties.
Here’s a snapshot of the NSW postcodes with the highest mortgage delinquency rates:
| Locality | Delinquency Rate |
|---|---|
| Abbotsbury | 3.53% |
| Chifley | 3.36% |
| Albion Park | 3.28% |
| Bligh Park | 3.16% |
| Fairfield | 3.16% |
| Avondale | 2.90% |
| Punchbowl | 2.88% |
| Banora Point | 2.86% |
| Bankstown | 2.77% |
| Airds | 2.70% |
Contributing Factors
Moody’s Ratings vice president and senior credit officer Alena Chen attributes these high delinquency rates to several factors. Residents in outer suburbs typically have lower and less disposable incomes compared to those in inner suburbs. These areas often have less diverse job markets, with many workers employed in high-risk industries such as construction, which can lead to concentrated job losses and difficulties in meeting mortgage repayments.
Moreover, Chen notes that the timing of loan approvals plays a crucial role. Loans taken out during 2021 and 2022, when interest rates were historically low and house prices peaked, are now deteriorating more rapidly. Borrowers needed to take out larger loans during this period due to high housing costs, and the recent interest rate hikes have made these loans much harder to service.
Impact on Households
Mortgage broker Rob Lees from Mortgage Choice Blaxland, Penrith, and Glenmore Park has observed the strain firsthand. He mentions that many households are cutting discretionary spending to manage their mortgage repayments. Lees shared an example of a couple who, despite both being employed, had to refer to their bank’s hardship arrangements as their savings were nearly depleted.
Investment loans, while not yet as affected, could see trouble ahead. Many investors are still on interest-only repayments, which means they haven’t reduced the principal amount of their loans. When these interest-only periods end, the increase in repayments could cause further financial strain.
Economic Outlook
AMP deputy chief economist Diana Mousina highlights that while mortgage arrears have risen to pre-COVID levels, they are not yet at a point that threatens financial stability. However, households with little free cash flow after essential expenses are most at risk, especially those with large loans taken out recently.
The forecast for relief via interest rate cuts remains bleak. AMP predicts that any rate cut might not happen until November at the earliest, leaving home owners to contend with elevated interest rates for the foreseeable future.
Conclusion
The mortgage delinquency rates in Sydney’s western suburbs and the Illawarra reflect broader economic pressures on households. Lower incomes, less job diversity, and the burden of larger loans taken out during low interest periods are contributing to financial difficulties. While some households manage by cutting spending or seeking hardship arrangements, the outlook remains challenging with high interest rates expected to persist.
