What is a Mortgage Cliff?

The “fixed-rate cliff” is a significant phenomenon in the Australian mortgage and property market, particularly relevant in the context of recent economic changes. It refers to the situation where a large number of fixed-rate home loans, taken out during the period of low-interest rates, are coming to the end of their fixed-rate period.


The current economic climate in Australia, characterised by rising interest rates and increasing cost of living, has imposed significant stress on mortgage holders. This situation is not just a national trend but also impacts regions like South Australia, reflecting a widespread economic challenge.

As of September 2023, a record number of 1,573,000 Australian mortgage holders, constituting 30.3% of the total, found themselves ‘At Risk’ of mortgage stress, according to Roy Morgan. This figure is a notable increase from May 2022, with 766,000 additional Australians falling into this category. The escalation in mortgage stress is directly linked to the Reserve Bank of Australia’s (RBA) decision to incrementally raise the official interest rates, reaching 4.1% by October 2023. This rate is the highest since May 2012. The analysis also revealed that 1,043,000 mortgage holders, or 20.5%, are considered ‘Extremely At Risk’ – a significant rise from the 15-year average of 15.3%.

A survey conducted by Savvy in 2023 provides further insights into how Australian families are coping with these economic pressures. About 38% of respondents indicated plans to reduce spending and prioritise mortgage repayments if interest rates continued to rise. Although 21% of participants admitted to feeling pressured, they had not yet missed any mortgage repayments. Interestingly, 19% mentioned they would attempt to increase their income, an increase from 14.5% in the previous year’s survey. These figures underscore the adaptability and resilience of Australian families in the face of financial adversity.


The Impact On South Australian Homeowners

While national data presents a clear picture of the mounting financial pressures, the specific impact on South Australia is less distinctly outlined in available resources. However, it is reasonable to surmise that homeowners in South Australia are experiencing similar challenges as the rest of the country, given the widespread nature of the economic factors at play. Homeowners in South Australia, much like their counterparts across the nation, are likely grappling with the dual challenge of managing rising living costs while meeting increasing mortgage repayments.

As per a report by 9News, the situation across Australia as of July 2023 was equally challenging, with 29.2% of mortgage holders considered ‘at risk’ of mortgage stress. This increase in mortgage stress is attributed to a series of interest rate hikes by the RBA. These hikes have intensified the financial burden on homeowners, compelling many to reassess their financial strategies and spending habits.

The rising interest rates are a response to rampant inflation, with the official cash rate lifted from a record low of 0.1% p.a. to 3.35% p.a. by May 2022. This series of rate hikes, alongside other economic factors such as high energy and fuel prices, have contributed significantly to the cost of living stress experienced by mortgage holders. The inflation rate, standing at 7.8%, further exacerbates the situation, diminishing the purchasing power of households and making it more challenging to manage mortgage repayments.

Mortgage stress, defined as the financial strain experienced when mortgage repayments exceed a certain percentage of household income, is not a static measure. It fluctuates with changes in income, employment status, and interest rates. Unemployment, in particular, is identified as a critical factor that significantly impacts income and, consequently, mortgage stress. This relationship between employment and mortgage stress underscores the interconnected nature of the economy, where job security and interest rates play pivotal roles in determining the financial health of households.

To mitigate these pressures, homeowners are adopting various strategies. These include cutting back on non-essential expenses, seeking additional income sources, and refinancing mortgages to secure more favourable terms. In some instances, homeowners may choose to sell properties in response to unsustainable mortgage commitments, potentially impacting the housing market dynamics.

The financial challenges facing Australian mortgage holders, including those in South Australia, are multifaceted and evolving. They reflect broader economic trends and necessitate a combination of personal financial management, policy interventions, and market adjustments to alleviate the pressures. As the economic landscape continues to change, the response of mortgage holders and the broader market will be crucial in navigating these challenging times.

The rising cost of living and interest rates in Australia are placing significant stress on mortgage holders, a situation mirrored in South Australia. While the extent of the impact may vary regionally, the overarching economic trends indicate a nationwide challenge. Homeowners are employing various strategies to cope with these pressures, highlighting the resilience and adaptability of Australian families in the face of economic adversity.

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