Why two-thirds of Australian home borrowers need to be worried as interest ... trends now

Two-thirds of Australian home borrowers with a variable mortgage will be hit with more interest rates rises in coming months as ANZ predicts an 18 per cent house price plunge - but at least inflation may be easing.

Credit ratings agency Moody's is worried rising interest rates will see more Australians struggle to repay their mortgage, leading to more loan defaults.

The ANZ bank is now forecasting an 18 per cent plunge in capital city house prices by 2023 from the peaks of 2022, but this would be followed by a 5 per cent rise in 2024.

Under this scenario, Sydney's median house price would plunge by $255,053, falling from April's peak of $1,416,960 to $1,161,907 by late 2023, based on CoreLogic data.

Sydney house prices in 2022 have already fallen by 10.6 per cent back to $1,257,625, as of October, and any recovery in 2024 would take values back to where they are now.

ANZ senior economists Felicity Emmett and Adelaide Timbrell said the property price falls were likely to continue until next year as higher interest rates diminished the lending capacity of the banks. 

'The biggest factor driving down prices is reduced borrowing capacity, not a rise in forced sales,' they said.

'With our expectation that the cash rate will peak in May next year, we think that most of the impact on prices will be fully reflected by the end of 2023.'

ANZ is expecting the Reserve Bank of Australia to keep increasing the cash rate until it reaches an 11-year high of 3.85 per cent by May 2023 - up from an existing nine-year high of 2.85 per cent.

ANZ economists Catherine Birch and Finn Robertson noted almost two-thirds of Australian home borrowers were on a variable mortgage rate, which meant they would see a big increase in their monthly mortgage repayments.

'Australian households have a higher share of debt on a floating rate, facilitating faster transmission of

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