Three out of five Generation Y mortgage holders are capable of repaying their mortgage at an interest rate of at least 9%, according to a new survey by Mortgage Choice.
64% of existing borrowers aged 18 to 29 years said they could afford repayments at, or above 9%. Of those, almost half (46%) are prepared to repay at 11% or more.
This demonstrates that Gen Y borrowers, who are more likely to be first homebuyers, are better equipped to tackle the mortgage market than many may think.
Financial markets are predicting that by this time next year the cash rate will have returned to a more neutral level of around 5.5%, which means variable mortgage interest rates will stand at around 8%. Looking at our survey, results indicate a high percentage of existing borrowers will adjust relatively easily to rate rises.
Of course, a number will still find them a challenge and they certainly can be a deterrent for those looking to buy property and wondering whether they should commit.
With the majority of lenders passing on the October and November interest rate rises, we have seen variable rate loan repayments increase by almost $100 per month, based on an average 30-year $300,000 mortgage with a rate that stood at 5.75% beforehand. If rates increase by a further 0.25% in December and lenders pass it on quickly, the average borrower would be repaying around $150 per month extra before Christmas.
Tighter lending criteria should play a large part in ensuring new borrowers can afford rate rises, and we would hope these new market entrants have considered the implications and not added other debt after signing their contract. It's relieving to see the Mortgage Choice 2009 Consumer Sentiment Survey show that more than three out of every five Gen Y borrowers are prepared for higher interest rates.