More Aussies vulnerable to mortgage stress

New research from Roy Morgan found the number of mortgage holders ‘At Risk’ of mortgage stress jumped a further 50,000 people in the three months to May 2023 to hit its highest record since May 2008.

There were an estimated 1.43 million mortgage holders (28.8 per cent) considered ‘At Risk’ of mortgage stress in the three months to May 2023, which comes after two 25-basis-point increases from the Reserve Bank of Australia (RBA) taking the official cash rate up to 3.85 per cent.

This is the highest number since May 2008’s record of 1.46 million, while the proportion of mortgage holders is its highest since September 2011’s reading of 29.6 per cent.

“The latest Roy Morgan data shows mortgage stress in the Australian housing market has continued to increase with 1.43 million mortgage holders (28.8%) defined as ‘At Risk’ in May 2023, up 627,000 (+11.5% points) on a year ago before the RBA began a record-breaking series of interest rate rises,” Michele Levine, CEO of Roy Morgan, said.

“The figures for May 2023 take into account eleven RBA interest rate increases which lifted official interest rates from 0.1% in May last year to 3.85% by May. Since then, the RBA has subsequently increased interest rates again in the first week of June to 4.1%.

“The ABS monthly CPI figures for the year to May 2023 show Australian inflation dropping to 5.6%, down from 6.8% in the year to April 2023. This drop in CPI follows the ANZ-Roy Morgan Inflation Expectations – which also fell in May. However, this monthly decline proved to be short-lived with Inflation Expectations increasing substantially during the next four weeks in June.”

Despite the RBA moving to hold interest rates steady for the month of July at 4.10 per cent and offering reprieve to thousands of mortgage holders to keep out of the ‘At Risk’ bracket, the data still shows a high number of those categorised as ‘Extremely At Risk’ – and rising.

“[This is] now estimated at 922,000 (19.3%) in May 2023 – the highest for over a decade since November 2011 (20.8%). This is an increase of over 440,000 mortgage holders from a year ago (+8.5% points),” Levine said.

“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 increase towards the record high of 35.6% of mortgage holders considered ‘At Risk’ in May 2008 during the Global Financial Crisis.”

The RBA Board decided today to pause its rate hiking cycle and take the time to properly “assess the impact of the increase in interest rates to date and the economic cycle”, maintaining that while further potential rate rises may be necessary they are dependent on how the “economy and inflation evolve”.