If the cash rate rises across June and July, over 1.4 million Aussies could be at risk of mortgage stress. Image: Canva.
  • Two more 25 basis point interest rate rises will put at risk of mortgage stress levels on par with GFC times
  • Nearly one in five are extremely at risk of mortgage stress
  • Income is highlighted as having the larger impact on mortgage repayments than interest rate hikes

The latest from Australia’s largest independent research company has found that a worryingly high number of mortgage holders are at risk of mortgage stress.

At risk of mortgage stress was defined as borrowers who are paying between 25% to 45% of their after-tax household income on their home loan, based on the appropriate Standard Variable Rate reported by the RBA and the amount they initially borrowed.

Roy Morgan‘s research estimated 1.38 million mortgage holders, or 27.8% of mortgage holders, fell into that category in the three months to April this year.

The report also highlighted employment (or lack thereof) is the largest influencer on the ability to pay a mortgage, not interest rates.

Mortgage stress below GFC levels, but not for long

As the Reserve Bank of Australia (RBA) brought interest rates up significantly, over half a million (529,000) more Australians became at risk of mortgage stress.

Roy Morgan highlighted the fact it is the highest official interest rate since May 2012, but the total figure of those at risk remains below levels seen during the Global Financial Crisis (GFC), where some 35.6% or 1,455,000 would be feeling a significant pinch.

One in five (18.5%) Australian mortgage holders are classed as extremely at risk, according to the research, increasing to 881,000 in the three months to April 2023, some 200,000 more than the long-term average over the past 15 years of 661,000 (15.9%).

“The figures for April 2023 take into account the ten straight RBA interest rate increases which lifted official interest rates from 0.1% in May last year to 3.6% by April,” said Roy Morgan CEO, Michele Levine.

“Although the RBA did leave interest rates unchanged at their meeting in April, they subsequently increased interest rates again in the first week of May to 3.85% – just before the Albanese Government’s first Federal Budget.

Inflation began to move up again, 6.8% in the year to April 2023, up from 6.3% in the year to March 2023.

“This re-acceleration in the CPI followed a monthly spike in the ANZ-Roy Morgan Inflation Expectations in March (+0.3% points) which foretold of rising inflationary pressures in the economy,” said Levine.

“The good news is that this spike in Inflation Expectations proved short-lived, with the measure declining in subsequent weeks.”

If interest rates rise

The research modelled what could happen should a 25 basis point rise happen across both today and July, bringing this month to 4.10% and July to 4.35%.

Under 1.4 million (1,378,000) or 27.8% were considered at risk in April, with a June rise of 25 basis points to bring the percentage to 29.2% or 1,408,000. A further 25 basis point rise in July would take those at risk of mortgage stress to GFC levels at 1,455,000 or 30.2%.

Are rates the biggest factor in mortgage stress?

Roy Morgan’s report noted that losing a job or the main source of income has the largest impact on the ability to pay a mortgage, not rising interest rates.

“When considering the data on mortgage stress it is always important to appreciate interest rates are only one of the variables that determines whether a mortgage holder is considered ‘At Risk’,” said Levine.

“The variable that has the largest impact on whether a borrower falls into the ‘At Risk’ category is related to household income – which is directly related to employment.”

“The latest figures show rising interest rates are causing a large increase in the number of mortgage holders considered ‘At Risk’ and further increases will spike these numbers even further. If there is a sharp rise in unemployment mortgage stress is set to rise towards the record high of 35.6% of mortgage holders considered ‘At Risk’ in May 2008 during the Global Financial Crisis.

“The good news is that the latest Roy Morgan employment estimates show a record 13.8 million Australians were employed in April 2023, up over 600,000 from April 2022 indicating the strength of the labour market over the last year despite the RBA’s series of interest rate increases.”

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