Koushik Devanathan’s $770,000 mortgage on his north-west Sydney home is getting more difficult to pay off as rate rises eat into his stretched household budget.
The 35-year-old IT risk manager has already cut his discretionary spending, from TV streaming services to groceries and a planned trip to India at Christmas.
He has saved about $50 a month from switching to a cheaper mobile and internet plan with lower data, and dropping subscriptions to Disney Plus, Stan and Amazon Prime.
“We’re pretty much spending everything we earn,” says Sydney IT manager Koushik Devanathan, who is paying off a $770,000 mortgage in the north-west suburbs. Wolter Peeters
His family no longer eats out and has switched from shopping at the supermarket to the local Parklea farmers’ market. A planned school holiday getaway with his wife and two children, aged six and three, has been cut from four days to two. Childcare for their youngest may be next on the chopping block. If they cut care days back for their youngest from five to three days a week, the family would save $180 a week.
Around the country, families just like the Devanathans will be hunting for similar opportunities to cut back on spending and divert more of their household budgets to mortgage payments after the Reserve Bank lifted the cash rate target to 2.35 per cent on Tuesday. The 50 basis point rise – the central bank’s fifth since May – took the rate to its highest point since December 2014.
That would increase monthly payments for an owner-occupier with a 25-year, $1 million principal-and-interest loan by $288, taking the total increase since May to $1229.
Some economists predict the cash rate will rise to 3.1 per cent by Christmas and peak at 3.35 per cent by February.
If that happens, a $1 million borrower’s monthly repayments would have jumped by more than $1800 since rate rises started.
The Devanathans bought their five-bedroom home in Schofields – a 45-minute drive from the centre of Sydney – for $820,000 in 2019. Their repayments have grown from $2600 a month in January to $3600. Aside from cutting his last remaining streaming service – a Netflix account – Mr Devanathan said he has wrung the budget rag dry.
“We’re pretty much spending everything we earn,” he told The Australian Financial Review.
“We have to identify more avenues to cut down, but I don’t know if we have any left. So, we might have to dip into the savings or some funds back home in India.
“Hopefully with warmer weather we don’t have to use the air con as much, so we can save on energy. We could also look at cutting down water use.”
One final hope is that a recent $3000 investment to install 7.5 kw of solar panels on the family home might rein in power bills.
National property prices, which increased almost 29 per cent from their pandemic low in September last year to a high in April, have fallen by an average of 3.5 per cent, according to CoreLogic, which monitors property markets.
Potential buyers are either staying out of the market because of rising funding costs or are waiting for falling prices to plateau, causing new loan commitments to fall by 8.5 per cent in July, the second-largest fall in 20 years, according to the Australian Bureau of Statistics.
Rich Harvey, chief executive of buyers’ agency Propertybuyer, who estimates that prices around Sydney have fallen by 10-15 per cent, says: “Rate rises are continuing to be a big drag on buyers’ confidence and consumer demand.”
Alex Jamieson, founder of AJ Financial Planning, which deals with high net-worth clients, adds: “This is having a massive impact on sentiment. Private investors are holding back from the property market. They are sitting on the sidelines to see where it heads.”
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