Almost 20% of mortgage holders might be ‘at risk’

Oksana Patron

23 September 2022

The proportion of mortgage holders classified as being ‘at risk’ of ‘mortgage stress’ has grown to 854,000 (19.4%) in three months to July, a period which covered first three interest rate increases from the Reserve Bank of Australia (RBA), according to Roy Morgan.

So far, the RBA increased interest rate in May (+0.25%), June (+0.50%) and July (+0.50%), with official interest rates hitting 1.35% in early July and further increases expected in the next few months.

By contrast, mortgage stress dropped to record lows during 2021 due to record low interest rates, government stimulus and other measures taken by banks and financial institutions to support borrowers in financial distress combined to reduce the number of mortgage holders considered ‘at risk’.

On the other hand, the study confirmed that the proportion of mortgage holders considered ‘at risk’ of mortgage stress in mid-2022 was well below the high reached during the Global Financial Crisis (GFC) in early 2009 of 35.6% and below the average of the last decade of 20.8%.

The study also found that there had been a similar trend for mortgage holders considered ‘extremely at risk’, with only 12.7%, or 542,000, in this group in the three months to July 2022, below the average of the last decade of 13.9%.

Roy Morgan modelled the impact of the interest rates increases in August and September on mortgage holders as well as potential interest rate increases of 0.5% during each of the next two months.

“If the RBA increases interest rates BY 0.5% in each of the next two months this would mean 24.3% of mortgage holders, 1,100,000 would then be classified as ‘at risk’ – an increase of 246,000 on July 2022. This would be the most mortgage holders classified as ‘at risk’ since July 2013 just over nine years ago,” the study said.

Michele Levine, chief executive of Roy Morgan, said mortgage stress was on the rise during 2022 as the RBA embarked on its first interest rate increasing cycle in over a decade, but still remained below long-term averages in September despite five straight monthly increases.

“Of more concern is the rise in those mortgage holders considered ‘Extremely At Risk’, now estimated at 620,000 (14.1%) in September 2022 – the highest since May 2019, before anyone had even heard of the ‘Coronavirus’ or ‘COVID-19’,” she said.

“It’s important to consider that interest rates are but one variable 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.

“These figures suggest that as long as employment levels remain strong the number of mortgage holders considered ‘At Risk’ will not increase to anywhere near the levels experienced during the Global Financial Crisis in 2007-08-09 when well over 30% of mortgage holders were considered ‘At Risk’ – including a peak of 35.6% in May 2008.