The marginal seats most exposed to rising interest rates

The Reserve Bank’s decision to lift interest rates this week will weigh heavily on financially pressured home borrowers in a raft of marginal seats likely to decide the outcome of the federal election.

Analysis by the University of NSW identified 18 marginal seats across five states where a third or more of households with a mortgage were deemed to be in financial stress. The stress was more than 60 per cent in seven of those electorates, including La Trobe in Melbourne’s outer east and Greenway in western Sydney.

There are elevated levels of financial stress among home borrowers in some outer suburban marginal electorates Credit:Paul Rovere

The analysis also identified signs of financial stress among housing investors in electorates where Liberal incumbents are facing a strong challenge from “teal independents”. This includes the Sydney seats of Wentworth and North Sydney along with the Melbourne electorate of Kooyong held by Treasurer Josh Frydenberg.

The Reserve Bank lifted the official cash rate by 0.25 of a percentage point on Tuesday and the four major banks have passed on the increase to home borrowers in full. It was the first time in more than 11 years that official rates have been increased. The reaction of marginal seat voters to the prospect of rising interest rates could be crucial to the outcome of this month’s federal election.

Sydney University housing expert, Professor Peter Phibbs, said higher mortgage repayments would add to other cost of living pressures being felt by borrowers.

“For voters it’s another thing they can’t get out of paying at a time when a lot of costs have gone up,” he said.

While the vast majority of home borrowers will be able to comfortably absorb Tuesday’s rate rise many are likely to be concerned about how much rates could rise.

The UNSW study, published by the City Futures Research Centre in September, used a rolling sample of 52,000 households to determine levels of financial stress among mortgagors and renters.

Many marginal electorates with a high share of financially stressed mortgagors were in outer suburban districts of Sydney, Melbourne, Brisbane and Perth.

Professor Hal Pawson from the University of NSW’s City Futures Research Centre said outer metropolitan regions have a high concentration of recent first home buyers who are especially vulnerable to rising interest rates because they have not had the opportunity to build up much equity in their property.

“This is the part of the mortgage holding population that we need to be concerned about,” he said.

“The Reserve Bank says that, on average, the home-owning population of Australia is in a strong position – they have built up savings, they are way ahead with their repayments, and they have got a big buffer. That is true, but it’s a bit over-reassuring because it hides the fact there’s a substantial cohort of recent first home buyers who are not in that situation.”

Victorian government figures show suburbs within La Trobe (Lib, +5.5 per cent margin) and the seat of McEwan (ALP +5.4) on Melbourne’s northern fringe had a high share of beneficiaries receiving first home buyer support during the past year. In La Trobe 72.3 per cent of mortgagors were deemed in financial stress by the study, one of the highest rates in the country.

Domain group data shows the median house price in that seat has jumped 30 per cent since the last election to $750,000. In the electorate of McEwen just under 60 per cent of home borrowers were classified in financial stress. The median house price there has risen 25 per cent since the last election to $740,000.

Professor Phibbs said buyers who entered the housing market in the past six to nine months were likely to be the most anxious.

“Their repayments would have looked ok at the time, but they have got pretty humungous sized mortgages,” he said. “They have probably got a bit of headroom, but maybe not stacks of headroom. For that group, their anxiety will go up if rates rise.”

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