Pressure mounts for mortgage holders

Yasmine Raso

Senior Journalist, Financial Newswire

31 March 2023

Steady interest rate hikes from the Reserve Bank of Australia (RBA) have only continued the pressure felt by mortgage holders, which was also confirmed by new research from Roy Morgan.

In the three months to February 2023, 25.3 per cent or 1.23 million of mortgage holders were classified as ‘At Risk’ of mortgage stress – the highest number seen since September 2011’s 1.3 million.

The number of Australians deemed ‘At Risk’ of mortgage stress has risen by 514,000 or 8.5 per cent in the last year, with the interest rate now sitting at 3.6 per cent as of March – its highest point since June 2012.

While this number remains below the record high of 35.6 per cent or 1.45 million hit during the Global Financial Crisis (GFC) in early 2009, Roy Morgan chief executive Michele Levine said it will creep up to this point if inflation doesn’t slow.

“The ABS quarterly CPI figures for the year to December 2022 released in late January showed Australian inflation hitting a 33 year high of 7.8% – the highest since March 1990 (7.8%). However, a new monthly ABS inflation indicator showed inflation slowing to 7.4% in the year to January 2023. The latest figures for February 2023 are due out this week and if they show a further fall may well influence the RBA to halt its series of interest rate increases next week,” she said.

“If inflation doesn’t slow again this week the RBA is likely to follow the example of central banks overseas including the Federal Reserve in the USA (raised interest rates by +0.25% to a range of 4.75-5.00% on March 22, 2023) and the Bank of England (raised interest rates by +0.25% to 4.25% on March 23, 2023) and raise interest rates again next week by +0.25% to 3.85%.

“If the RBA does raise interest rates again in next week by 0.25% Roy Morgan forecasts that mortgage stress is set to increase to over 1.45 million mortgage holders considered ‘At Risk’ by April 2023 – 28.8% of all mortgage holders, the highest since September 2011.”

Roy Morgan has also forecast that two further interest rate rises by 25 basis points each will drive the number of mortgage holders considered ‘At Risk’ up to 31.0 per cent or 1.565 million by May 2023.

There are also 735,000 mortgagees or 15.7 per cent considered ‘Extremely At Risk’ in the three months to February 2023, surpassing the 15-year average of 659,000 mortgage holders. The research also recognised the impact of unemployment on paying mortgages, as interest rates are not the major contributing factor but rather it is losing jobs or main source of income.

“When considering the data on mortgage stress it is always important to appreciate that interest rates are only one of the variables that determines whether a mortgage holder is considered ‘At Risk’. 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,” Levine said.

“The latest Roy Morgan employment estimates show a near-record 13.5 million Australians were employed in February 2023, up by over 600,000 since February 2020 when there were 12.9 million employed pre-pandemic. The strong growth in the jobs market has attracted more Australians into the labour force and there are now over 1.5 million unemployed Australians (10.1% of the workforce) compared to 1.17 million pre-pandemic.”