Property Investors Eye suburbs with Home Mortgage Distress Sales

Mortgage Pain in Suburbs as Interest Rates Rise

The recent home mortgage data provides valuable information for investors, which when analyzed properly provides glaring opportunities for smart property investors to find distressed properties for sale at bargain prices.


Sate of distress.State of distress.

THE Sydney suburbs of St Marys and Mount Druitt will feel the most pain in the country as interest rates climb, but, for the moment, it is a holiday postcode on the mid-North Coast that is finding it hardest to keep up with mortgage payments.

A survey of late mortgage payments to be released today by the international ratings agency Fitch Ratings shows that, overall, Australians put on a ”stellar performance” in meeting repayments over the past five years thanks to a resilient economy and low unemployment.

But a postcode-by-postcode breakdown reveals significant divergence. The popular holiday destination of Nelson Bay, just north of Newcastle, emerges as the surprise national hot spot for mortgage arrears, home to the highest proportion of borrowers who have missed at least one payment on their mortgage.

The area is home to a large number of holiday and investment homes. A stagnant housing market has made it harder for people who have fallen behind on payments to quit their mortgage by selling.

Nationally, the value of loans with payments late by 30 days or more hit a peak of 2.39 per cent of all outstanding loans in January. This has since fallen to 1.61 per cent on September 30, but in NSW it remains stubbornly high, at 1.9 per cent.

In the postcode of Nelson Bay, it is 9.3 per cent, the highest in the country. Reflecting the bigger-than-average size of mortgages in the area, the number of borrowers who are late is lower at 4.39 per cent but is still the highest in the country.

The head of Australian structured finance at Fitch Ratings, Natasha Vojvodic, said most of these late payers were more than 90 days late, indicating they were having a lot of trouble discharging their mortgages. ”They’re just not being able to sell the properties,” she said. An increase in forced sales of holiday homes due to the pressures of the global financial crisis was also adding to pressures.

The survey paints a picture of mortgage stress just before the Reserve Bank began cutting interest rates in October. Mortgage stress is expected to rise from here. Ms Vojvodic said financial pressure would be greatest in the new year as borrowers had to deal with the usual post-Christmas spending hangover, made worse by rising interest rates.

Borrowers who had built up the least amount of equity in their homes were most at risk. A comparison of loan-to-home value ratios shows NSW has five out of the 10 most heavily indebted households in the country.

St Marys tops the list, with mortgage holders owing an average 67.5 per cent of the value of their home, the highest in the country. Mount Druitt is second, while Minto, Plumpton and Rooty Hill figure in the top 10.

According to the report, this measure of loan value to home value is an important marker of future mortgage stress. ”It indicates those parts of the country more impacted by interest rate movements and housing affordability; this translates into the areas most likely to be under pressure as interest rates rise going into 2010.”

The survey was of 730,000 mortgages worth $118 billion, or 12 per cent of the value of total outstanding home loans in Australia.

With the Australian Reserve Bank continuing to increase interest rates, mortgage holders in these suburbs will be feeling the pinch even more.

Astute Investors will be keeping their eyes open for bargain deals to be snapped up in these suburbs.

If you would like to investigate purchasing an investment property in these suburbs contact the RBA Property Consultants for a personalized investment property plan on 02 9144 4470

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