mortgage stress saw a consecutive decrease in Australia
Mortgage stress decreased slightly in November 2023. Image: Canva.
  • Reduced amounts of borrowing and outstanding lowered mortgage stress figures.
  • Higher inflation figures in December could lead to further rate rises and mortgage stress.
  • Unemployment crept up only 0.1% in November.

Australia’s interest rates are currently an eye-watering 4.35%, with the latest hike having occurred in November 2023.

Surprisingly, however, levels of mortgage stress eased throughout November.

To be considered at risk of mortgage stress, a mortgage holder has to pay 25% to 45% of their after-tax income into their home loan.

According to new research from Roy Morgan, 1,490,000 mortgage holders – 29.9% – were at risk of mortgage stress in the three months leading to November 2023; this is a slight decrease from the 30.1% of mortgage holders who were at risk of being in mortgage stress in the three months to October 2023.

Roy Morgan CEO, Michele Levine, observed that a few factors account for this decrease, including increased household incomes and employment and reduced amounts of borrowing and outstanding.

“The latest Roy Morgan data shows 1,490,000 mortgage holders were at risk of mortgage stress in November 2023,” she said.

“This represented a second successive monthly decline in mortgage stress, down 83,000 from September 2023.”

“However, the latest figure is still up 683,000 mortgage holders over the last 18 months since the RBA began raising interest rates in May 2022.

“A deeper analysis of the underlying factors affecting mortgage holders shows a combination of factors leading to the easing of mortgage stress in the last few months. In recent months household incomes and employment have both increased strongly while there’s been a reduction in the amounts borrowed and outstanding.”

Michele Levine, Roy Morgan

ABS’ latest inflation figures

Levine noted good news with the latest release of the Australian Bureau of Statistics (ABS) monthly inflation figures for November 2023, which recorded the consumer price indicator at 4.6% in November, down from the rise of 5.3% in October.

Monthly CPI indicator, Australia, annual movement (%)

Monthly CPI indicator
Source: ABS

“This is the lowest annual inflation in Australia for two years since January 2022 – and the upcoming figure for December 2023 is expected to drop further and well below 4%,” she said.

This represents more reasons for Australian mortgage holders to be optimistic, as the RBA is likely to halt rate rises should inflation be around the two to three per cent range.

Levine also said the extended pauses in cash rate increases – from July to October last year – gave mortgage holders some respite, allowing growth in a few areas of the economy to catch up and reduce mortgage stress.

Moreover, Levine added when home loan interest rates were low during the pandemic, people would use their home loans to fund other aspects of life, such as small businesses, trips, home improvements.

“During this period, home loans were a cheap form of financing. The increase in interest rates has encouraged people think about this kind of funding – and they are making different choices.”

What if the RBA lifts the cash rate in February?

The re-acceleration of mortgage stress will probably hang on the December inflation figures; should it be higher than expected, another interest rate hike is likely on the horizon.

Levine said if the RBA raises interest rates by a further 0.25% in February, Roy Morgan forecasts mortgage stress to increase to 1.53 million mortgage holders – 30.8%.

“Although concerning, this level would still be below the 1.57 million reached in September 2022,” she said.

However, at least according to LJ Hooker head of research, Matthew Tiller, the most likely outcome for a long stretch of 2024 is a period of rates remaining on hold, with cuts happening closer to the end of the year.

There will surely be many anxiously awaiting the news of a further rate rise, but Levine noted the greatest impact on an individual, or household’s, ability to pay their mortgage is not interest rates, but if they lose their job or main source of income.

But in this arena there is some reason for optimism too, as the ABS noted only a meagre increase of the unemployment rate of 0.1% in November 2023.

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