Borrowers are at risk of falling into mortgage defaults once banks hike rates.

Many banks have already introduced rate hikes in their home loan offerings despite the Reserve Bank of Australia leaving official cash rate untouched at 1.5%. Should big banks follow suit, as many as one million households would not be able to meet their monthly repayments.

This is according to Digital Finance Analytics principal Martin North, who told ABC News that even a hike as low as 0.15 percentage points over the next few months would send borrowers in mortgage defaults.

"Today 975,000 households across Australia with owner-occupier mortgages are right on the edge now. And there are around 50,000 who are already over the edge and are looking like they could default. If rates went up by 0.15 percentage points, that would go up closer to the round million," North told ABC News. "It's that marginal borrower, it's the borrower who is already up against it, who's got little wiggle room, who's already struggling with childcare costs, fuel costs, electricity costs."

Queensland Investment Corporation director of research Katrina King said banks have little choice but to raise interest rates soon if they wish to maintain profit margins.

"I think that they do have to listen hard to their equity investors, and with their cost of funding increasing, this may be some way to alleviate the pressure on their net profit, and the expectations for their profit, and be able to reward their shareholders," she said.

King said despite needing to find new funding measures, banks are not expected to significantly increase rates.

"They may only need to raise rates 7 to 10, maybe 15 basis points in order to alleviate the pressure on them," she said.

Some smaller lenders have already introduced rate changes, including Macquarie Bank, AMO, Bank of Queensland, Suncorp and ME Bank.


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