High-income homeowners in Australia who purchased properties when home loan interest rates were at historic lows of around 2% in 2021 are now grappling with the rising cost of living and soaring mortgage repayments, which have climbed to an average of approximately 6.5% in 2024.
This significant financial pressure stems from the Reserve Bank of Australia raising interest rates 13 times from their record lows. As a result, many homeowners are now considering downsizing or relocating to more affordable areas. However, this decision comes with additional financial burdens, such as selling costs, stamp duty, and the potential risk of selling below the initial purchase price—a situation that could lead to substantial financial losses and take years to recover from.
In Sydney’s eastern suburbs, where the average mortgage size is significantly higher than the general Sydney average, the impact is particularly pronounced. For instance, homeowners in affluent areas like Double Bay often carry mortgages around $3.7 million. Consider a semi-detached cottage in Bondi purchased for $3 million with a $2 million mortgage at an interest rate of 2% in 2021. The monthly repayments would have been approximately $7,392. Today, with interest rates at 6.5%, those repayments now exceed $12,641 per month—a staggering increase.
This financial burden is compounded by childcare expenses, with the cost of daycare for two children, five days a week, ranging from $4,000 to $5,000 per month. Even families with high incomes exceeding $500,000 are feeling the strain, particularly those ineligible for the Commonwealth of Australia Child Care Subsidy. Many young families are cutting back on personal expenses, including children’s recreational activities, to meet their financial obligations.
These pressures are being felt most acutely by owners who entered the property market within the past five years, many of whom have since added to their families and now face the dual challenge of rising mortgage costs and childcare expenses. While the tax breaks introduced in July have provided some relief, they pale in comparison to the significant increases in other expenses.
Adding to the complexity, sales volumes in Sydney’s eastern suburbs have declined significantly in 2024 compared to 2020. According to recent data, transaction volumes have dropped by approximately 15.4%, reflecting reduced market activity despite limited stock on the market.
Unless the Reserve Bank moves to lower interest rates, we could see an increase in distressed sales, potentially leading to falling property prices despite the low supply. For many, this situation is nothing short of a financial catastrophe, as the compounding pressures of mortgage repayments, living costs, and childcare expenses become increasingly untenable.