Further interest rate increases put more borrowers at risk
A record 1,573,000 Australian borrowers, or 30.3% of mortgage holders in Australia, were “at risk” of “mortgage stress” in the September quarter, a period which included three Reserve Bank meetings with no changes to interest rates, new research from Roy Morgan has revealed.
The September figures were up 7,000 on a month ago, and represented “a substantial increase of 766,000 mortgage holders since RBA began a record-breaking series of interest rate increases nearly 18 months ago in May 2022,” said Michele Levine (pictured above), CEO of Roy Morgan.
“The figures for September 2023 take into account all 12 RBA interest rate increases which lifted official interest rates from 0.1% in May last year to 4.1% by June 2023. Since then, the RBA has decided to leave interest rates unchanged at its last four meetings.”
While the figures are worrisome, they remain below the record highs seen during the Global Financial Crisis in 2008 when 35.6% of mortgage holders were in mortgage stress, albeit due to the larger size of the Australian mortgage market today.
Of even more concern with the increase is the number of mortgage holders considered “extremely at risk,” which is now at 1,043,000 (20.5%), significantly surpassing the long-term average of 15.3% over the last 15 years.
“This figure has more than doubled since the RBA began raising interest rates, representing an increase of over 560,000 mortgage holders,” Levine said.
Mortgage holders are considered “at risk” if they have repayments exceeding a certain percentage of their household income, and “extremely at risk” if even the “interest only” is higher than a certain proportion of their income.
“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’,” Levine 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.”
Impact of potential rate increases
Roy Morgan has modelled the impact of two potential RBA interest rate hikes: one in November (+0.25% to 4.35%) and another in December (+0.25% to 4.6%).
In September, 30.3% (1,573,000) of mortgage holders were deemed “at risk,” and this figure would rise to 30.4% if the central bank raises interest rates next week.
Should RBA increase interest rates by +0.25% in November to 4.35%, the percentage of “at risk” mortgage holders would rise by 0.1% points to 30.4%, which is equivalent to 1,581,000 borrowers, up 8,000 on the previous month.
In the event of a further +0.25% hike in December, bringing the cash rate to 4.6%, the number of “at risk” mortgage holders would rise by 0.7% points to 31.0%, which equates to 1,612,000 borrowers, or an increase of 39,000 compared to the previous month.
“The latest figures on mortgage stress show that 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,” Levine said. “If there is a sharp rise in unemployment, mortgage stress is set to increase even more.”
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
