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Stress takes over for mortgage holders since Nov rate rise

Yasmine Masi28 February 2024
Hand holding house in front of blurred background

Figures from Roy Morgan considering the three months to January 2024 show a rise in the number of mortgage holders that were ‘At Risk’ of mortgage stress, hitting 1.609 million or 31 per cent.

This period took into account the last interest rate hike announced by the Reserve Bank of Australia (RBA) in November 2023, taking the official cash rate up by 25 percentage points to 4.35 per cent. The number of mortgage holders now at risk is at its highest since the 1.56 million seen in August and September last year.

“The latest Roy Morgan data shows 1,609,000 mortgage holders were ‘At Risk’ of mortgage stress in January 2024, up 82,000 from December and up 119,000 since November when the RBA raised interest rates to a 12 year high of 4.35%,” Michele Levine, CEO of Roy Morgan, said.

“The latest figures for January 2024 represent an increase of 802,000 mortgage holders considered ‘At Risk’ since the RBA began raising interest rates in May 2022. The figures take into account 13 interest rate increases which raised interest rates by a total of 4.25% points to 4.35%.

“The extended pause in official interest rate increases for four months from July – October 2023 reduced the pressure on mortgage holders and allowed growth in several areas of the economy to ‘catch up’ and reduce mortgage stress from the mid-year highs above 1.56 million. However, the interest rate increase in November has added renewed pressure on mortgage holders.”

The data also indicated there were 994,000 mortgage holders or 19.8 per cent that were deemed ‘Extremely At Risk’ by the research firm, well above the past 10 years’ long-term average of 14.3 per cent.

Modelling completed by Roy Morgan also highlighted the impact of further interest rate rises. If upped in March by 25 basis points, there will be another 16,000 mortgage holders now ‘At Risk’ of mortgage stress; if held in March and increased in April by 25 basis points, the January numbers will rise by 29,000.

“The latest ABS monthly inflation figures for December 2023 showed a sharp decline in the indicator to 3.4% – down 0.9% points from a month earlier and down a large 5% points from a year earlier. This is the lowest annual inflation in Australia for over two years since November 2021 (3.2%),” Levine said.

“Although inflation pressures are clearly easing, the level of inflation remains above the Reserve Bank’s preferred target range of 2-3% and in inflation indicators such as petrol prices remain high. For the first time in history average retail petrol prices have been above $1.80 per litre for a record 32 straight weeks – equivalent to eight months.

“For these reasons we have modelled a further interest rate increase of +0.25% in March 2024. If the RBA does raise interest rates by 0.25% in March, Roy Morgan forecasts mortgage stress would increase to 1.64 million mortgage holders (31.6%) considered ‘At Risk’ by April. This would represent a new record high number of mortgage holders considered ‘At Risk’ for mortgage stress.”

Roy Morgan’s latest unemployment estimates also showed 3,000,000 people or 19.3 per cent of the workforce are either unemployed or underemployed, a significant factor contributing to mortgage stress, which has risen 0.9 per cent compared to the same time last year.

“The latest figures for January show that 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’ of mortgage stress,” 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. The employment market in Australia has been exceptionally strong over the last year and this has underpinned rising household incomes which have played a part in reducing overall mortgage stress in January.

“However, rising interest rates since May 2022 have caused a large increase in the number of mortgage holders ‘At Risk’. If there is a reacceleration in inflation over the months ahead, that results in further interest rate increases in 2024, levels of mortgage stress are set to increase further to new record highs.”

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