Large numbers of brokers' clients now 'mortgage prisoners', says MFAA
A record number of mortgage holders are at risk of mortgage stress, according to alarming new research from Roy Morgan.
The data, released last week, shows that 1.57 million, or 30.2% of mortgage holders were at risk of mortgage stress in the three months to August 2023.
During this period, the Reserve Bank of Australia introduced one official cash rate increase of 0.25%, taking official interest rates to 4.1% in June.
The mortgage stress figures for August represent a new record high and surpass the previous record reached only a month ago.
The run of interest rates rise over the past year has exacerbated the problem, with more 750,000 more households deemed at risk of mortgage stress during this period.
Roy Morgan CEO Michele Levine said these figures showed that rising interest rates had caused a large increase in the number of mortgage holders considered at risk and further increases would spike these numbers even further.
“If there is a sharp rise in unemployment, mortgage stress is set to increase even more,” Levine said.
The MFAA recently undertook a membership survey which showed many of those surveyed were under considerable financial pressure or mortgage stress, with their mortgage repayments exceeding 30% of their pre-tax household income.
MFAA CEO Anja Pannek (pictured above left) said according to an MFAA member survey 93% of brokers said their clients are more concerned about meeting repayments than they were at the beginning of the year.
“We also had 80% of brokers reporting that they have clients who are mortgage prisoners and 90% said they are encountering considerably more mortgage prisoners compared to the beginning of the year,” Pannek said.
“While these are not direct measures of mortgage stress itself, it does highlight that there is stress in the system.
“With the RBA reporting earlier this year indicating mortgage payments rose to a record high of 9.7% of household disposable income, certainly higher repayments are stretching many household budgets.”
Pannek said for people under mortgage stress, brokers offered a valuable resource to help them understand their options.
“In the right circumstances, steps such as refinancing to a longer loan term may be appropriate, provided the client is aware of the consequences and has a plan for later down the track.”
Pannek said conversations with clients experiencing mortgage stress could be difficult.
“We encourage brokers to make time for themselves to reset and prevent burn out.”
The managing director of the FBAA, Peter White, who was the key figure driving last month’s inaugural 2023 World Summit of the International Mortgage Brokers Federation (IMBF), said research showing a record high number of mortgage holders were at risk of mortgage stress sadly didn’t come as a surprise.
“As far back as 2021 – while rates were at record lows – the FBAA commissioned the first ‘Australian mortgage and rental affordability survey’ and publicly warned that the majority of Australian borrowers and renters could not meet a mortgage or rent increase equivalent to a rate rise of only 1%,” White said.
“The survey found that 57% of people paying a mortgage or rent answered ‘not at all’ when asked how likely they were to be able to meet a monthly increase in their rent or mortgage of $300.
“After several rate rises, in May 2023 we commissioned the 2023 Australian mortgage and rental affordability survey which found that even five months ago a large percentage of Australians with a mortgage and who were renting were struggling.”
White said in some cases the situation was so serious that to make ends meet clients were cancelling holidays, selling assets, taking additional work, cutting back on groceries and social activities, withdrawing savings, and in the case of renters, moving to cheaper rental properties.
“The survey also found that the personal, social and mental health impacts on borrowers and renters were just as significant as the financial challenges.”
White said mortgage stress was not confined to any one demographic or sector.
“Only a few days ago it was reported that an increased number of people on six-figure annual incomes are currently seeking crisis financial help.
“Finance brokers have been assisting clients through these times since the first-rate increase and continue to do so.
“Credit has become harder for many due to both the increased rates and servicing buffers, so brokers have a vital role to play.”
White said brokers should continue to be proactive and contact their clients to check in and see how they are, “because lenders certainly won’t be giving borrowers a courtesy call”.
“Because brokers must act in the best interests of clients sometimes we will advise clients to stay where they are, but in other cases we can provide options that lenders cannot, and for a family struggling financially, this can be life changing.”
White said his advice to brokers was to provide great service and stay in touch with their clients.
“This personal service is the reason why such a large percentage of Australians use finance and mortgage brokers, and our clients need us more than ever at this difficult time.”
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