Number set to spike past GFC levels if interest rates continue to rise
New research conducted by Roy Morgan has revealed concerning data about the state of mortgage stress among Australian homeowners.
According to Roy Morgan’s estimates, around 1.43 million mortgage holders, which accounts for 28.7% of all mortgage holders, were deemed to be “at risk” of mortgage stress during the three months leading up to June 2023. This period included two interest rate increases of 0.25%, which raised the official interest rates to 4.1% in June.
The number of mortgage holders at risk of mortgage stress is now at its highest level in over 15 years, matching the figures recorded in May 2008 when there were 1.46 million “at risk” mortgage holders. The situation has been deteriorating over the past year, with an increase of 539,000 mortgage holders facing mortgage stress due to a series of interest rate hikes implemented by the Reserve Bank of Australia at 12 of the last 14 monthly meetings. The current official interest rate of 4.1% is the highest recorded since May 2012.
Despite the alarming rise, the current figures remain slightly below the peak reached during the Global Financial Crisis in early 2008 when 35.6% of mortgage holders (1,455,000 individuals) were facing mortgage stress. However, if the RBA raises interest rates by an additional 0.25% in August and September, the number of at-risk mortgage holders is expected to surpass the GFC levels, reaching over 1.51 million by September.
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Roy Morgan used two criteria to assess mortgage stress among holders: firstly, whether their mortgage repayments exceed a certain percentage of household income, and secondly, whether even the interest-only payments exceed a specific proportion of household income. Currently, 943,000 mortgage holders (19.6% of all mortgage holders) are considered “extremely at risk,” exceeding the long-term average of 15.4% over the past 15 years.
Impact of unemployment
While the focus has been on interest rate hikes, Roy Morgan's CEO, Michele Levine (pictured above), pointed out that job losses have a more significant effect on borrowers' ability to meet mortgage payments.
“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,’” she said. “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,” she said. “If there is a sharp rise in unemployment, mortgage stress is set to increase towards the record high of 35.6% of mortgage holders considered ‘at risk’ in May 2008 during the Global Financial Crisis.”
Levine said that if the RBA decides to raise interest rates by 0.25% next week, the number of mortgage holders ‘at risk’ is projected to increase to over 1.51 million (30% of all mortgage holders) by August. Moreover, the number of “extremely at risk” mortgage holders has surged to 943,000, the highest level since September 2011, indicating a 7.8% increase from a year ago.
The data suggests that the rise in interest rates has triggered a significant rise in mortgage stress, which could worsen if unemployment increases sharply, leading to a potential return to the peak levels seen during the Global Financial Crisis in 2008.
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