Australians at risk of mortgage stress briefly dipped last month, but the mortgage relief might not last for long
Image: Canva.
  • The pauses in cash rate hikes were partly behind the easing in at risk of mortgage stress numbers.
  • In November, the interest rate rose to 4.35%.
  • Another rate rise in December could put over 1.55 million Australians at risk of mortgage stress.

Australia’s interest rates were on hold at 4.10% from July through to October, with the official cash rate recently lifting at the start of November.

This latest run of interest rate holds seems to have coincided with easing levels of potential mortgage stress in Australia, but there’s more to the story.

New research from Roy Morgan revealed that 1,514,000 mortgage holders, or 30.1%, were at risk of mortgage stress in the three months to October 2023. The October figure is a slight fall from a month earlier, with Roy Morgan CEO, Michele Levine, noting several factors were at play, including higher household incomes, more employment, and reduced amounts of borrowing and smaller amounts outstanding.

“The latest Roy Morgan data shows 1,514,000 mortgage holders were ‘At Risk’ of mortgage stress in October 2023. Although this was down slightly on a month earlier, this represents a substantial increase of 707,000 mortgage holders since the RBA began a record-breaking series of interest rate increases just over eighteen months ago in May 2022,’ said Levine.

“The figures take into account the interest rate increases from May 2022 to June 2023, but not the most recent increase in early November.

“The extended pause in official interest rate increases from July – October 2023 has played a part in reducing mortgage stress in the latest figures.”

Michele Levine, Roy Morgan

“A close analysis of the underlying factors shows that a combination of factors led to the easing of mortgage stress in the latest figures. Over the last several months household incomes and employment have both increased strongly while there’s been a reduction in the amounts borrowed and outstanding.”

Australians at risk of mortgage stress remain below GFC levels

Roy Morgan data shows that those at risk of mortgage stress hit a high in mid-2008, when 35.6% of mortgage holders were doing it tough; this was the time of the global financial crisis (GFC).

roy morgan mortgage stress percentage of owner occupier mortgagees 22 11 2023
Source: Roy Morgan Single Source (Australia), average interviews per 3 month period April 2007 – October 2023, n=2,764. Base: Australians 14+ with owner occupied home loan.

How will a December rate hike hit Aussies?

If interest rates rise 25 basis points in December, taking the official cash rate to 4.6%, Roy Morgan modelling expects over 1.55 million Australians to be at risk of mortgage stress.

While October saw 30.1% of mortgage holders, or 1,514,000, at risk, that proportion could rise to 30.9%, or 1,553,000 considered at risk.

How are Aussies coping?

Levine said some of the levers being pulled include downsizing and selling other assets.

“When home loan interest rates were low, people used their home loans to fund what we might call the ‘business of life’ – small businesses, trips, home improvements, school fees, second and holiday homes etc. etc. During this period home loans were a cheap form of financing,” she said.

“The increase in interest rates has encouraged people to think again about this kind of funding – and they’re making different choices.”

“Although this is a welcome development, the RBA’s decision to increase interest rates in early November came after a renewed rise in the official inflation numbers. The latest ABS CPI monthly figures for the year to September 2023 show Australian inflation at 5.6%, up 0.4% points from August and up 0.7% points over the last two months.

“This is the first-time official inflation has increased for two straight months so far this year – the last time was at the cyclical peak in December 2022 at 8.4%. The increases to inflation are not surprising though considering the increase in energy and fuel prices in recent months.

“The average retail petrol price has averaged above $1.90 per litre for a record 15 straight weeks since early August – beating a previous record run at such a high price in May-July 2022. During mid-2022 Inflation Expectations increased rapidly from 5.3% to 5.9% – up 0.6% points. The latest weekly Inflation Expectations data for mid-November shows the measure at 5.6% for the week to November 19 – up a large 0.7% points since mid-September.

“These pressures are a key factor for why we have modelled another interest rate increase in December.”

“If the RBA does raise interest rates by 0.25% in December, Roy Morgan forecasts mortgage stress is set to increase to over 1.58 million mortgage holders (31.6%) considered ‘At Risk’ by early next year.”

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