The head of Australia's peak finance and mortgage broker body has warned that "Australians are sleepwalking into disaster" as any rise in interest rates would plunge thousands into financial stress.
Peter White AM, managing director of the Finance Brokers Association of Australia (FBAA), said recent research conducted by McCrindle was a "wake-up call" that many borrowers may be living beyond their means.
Commissioned by the FBAA, the research showed 66 per cent of borrowers would be under pressure if interest rates were to rise and 57 per cent would not be able to make repayments if their mortgage were to increase by as little as $300 a month.
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"Many Australians are clearly on the brink and are sleepwalking into disaster, living in the false hope that rates will stay this low," Mr White said.
"This survey is a wake-up call and shows that even a small rise in rates – which is looking more likely next year with rising inflation – could be catastrophic for our nation."
An industry veteran of more than 40 years, Mr White said it was possible that Australians had grown complacent after almost 11 years without seeing a rate rise.
"The housing market has soared and there is a reasonable chance will undergo a correction, meaning that those with low deposits who have stretched themselves to make large repayments could see themselves with negative equity, owing more than the value of the property," Mr White said.
"Add a mortgage increase they can't pay, and there could be a lot of people in real trouble."
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Among those who said they wouldn't be able to afford repayments following a $300 monthly rise were households that earnt between $2000 and $3000 a week, proving that mortgage stress was not only looming for lower income earners.
"Where do these people go if they have to walk away from their home? Public housing, the street?" he asked.
"The options for lower income earners are slim and this will reverberate throughout our society, most likely on the back of the COVID economic struggles."
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Mr White called on the government to prevent lenders from lifting loan floor rates, and urged Australians not to take on mortgages that might see them making repayments with payday loans, personal loans or credit cards.
Australia's interest rates are currently at the historically low level of 0.1 per cent, following multiple emergency cuts to the cash rate to stimulate the nation's economy during COVID-19.
Prolonged periods away from the real estate market, combined with cashed-up workers and historically low interest rates has contributed to what Mr White described as an "overheating" housing market.
READ MORE: Australia's interest rates held at record lows
Digital banking expert from Compare the Market David Ruddiman said the fear of missing out – dubbed FOMO – is a powerful motivator.
"Buyers have been spooked by forecasts indicating that prices will continue to grow. In some ways they're fulfilling the prophecy by making bigger offers than they usually would," Mr Ruddiman said.
"The figures show the fear factor has been crucial in driving trends, with 63 per cent of respondents admitting they bought as quickly as possible to avoid surging prices.
"Looking at recent price rises, it's a strategy that could well have paid off thanks to even greater capital gains. What's important is that people are prepared to weather the blow of potential rate hikes and inflation in the future."
Australia's housing values are currently rising at the fastest annual pace since June 1989, having increased by an eye-watering 17.6 per cent over the first nine months of 2021.
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