Mortgage stress expected to drop, offset by Stage 3 tax cuts

New research from Roy Morgan has confirmed that while the number of mortgage holders ‘at risk’ of mortgage stress rose once again in June, it is expected to fall in the coming months with the introduction of the Stage 3 tax cuts.

The data for the three months to June found there were 1,602,000 mortgage holders (30.3 per cent) that were deemed ‘at risk’ of mortgage stress, an increase of 0.6 per cent of 88,000 from the previous months’ figures.

The research also found that while the Reserve Bank of Australia (RBA) has offered some reprieve by slowing its tightening cycle, the number of mortgage holders ‘at risk’ has risen by 795,000 compared to May 2022 when the cycle of interest rate increases began.

There are also 1,016,000 (20 per cent) of mortgage holders that are considered ‘extremely at risk’ by Roy Morgan, significantly higher than the decade-average of 14.5 per cent.

“The latest Roy Morgan data shows 1,602,000 mortgage holders were ‘At Risk’ of mortgage stress in June 2024, up 88,000 from May, but still below the record highs reached earlier this year,” Michele Levine, CEO Roy Morgan, said.

“The figures for June 2024 represent an increase of 795,000 mortgage holders considered ‘At Risk’ since the RBA began raising interest rates over two years ago in May 2022. The figures take into account 13 rate increases which raised interest rates by a total of 4.25% points to 4.35%.

“The latest ABS monthly inflation figures for May 2024 showed annual inflation at 4.0% – up 0.4% points from April 2024 and the highest figure this year. The increase in the inflation estimate led to media discussion about whether the RBA would need to once again raise interest rates.

“The renewed increases in inflation in recent months have moved the official level of inflation further away from the Reserve Bank’s preferred target range of 2-3%. In addition, key 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 53 straight weeks – over a full year.

“For these reasons we have modelled interest rate increases of +0.25% in August and September. However, although interest rate increases would normally lead to a higher level of mortgage stress, the Stage 3 income tax cuts delivered to millions of Australians in early July are set to have a larger impact in driving down mortgage stress over the next few months.”

Modelling completed by Roy Morgan suggested that even with a 0.5 per cent increase to interest rates at both August and September meetings, the number of mortgage holders ‘at risk’ of mortgage stress would drop by 35,000 in August to 1,567,000 (29.7 per cent); in September, while the number would increase to 1,578,000 (29.8 per cent) when compared month-on-month, it would still be 24,000 below current figures.

“Even if the RBA increases interest rates by +0.25% in both August and September to 4.85%, the level of mortgage stress would still drop by 24,000 to 1,578,000 mortgage holders (29.8%) considered ‘At Risk’ in the three months to September 2024,” Levine said.

“The latest figures for mortgage stress show that when considering the data, it is important to appreciate that interest rates are only one of the variables that determines whether a mortgage holder is considered ‘At Risk’ of mortgage stress. The Stage 3 income tax cuts are delivering significant financial relief, and a boost to take home pay, for millions of Australian taxpayers – including many mortgage holders.

“As these figures show, the variable with 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 has been strong over the last year (the latest Roy Morgan estimates show 673,000 new jobs created compared to a year ago) and this has provided support to household incomes which have helped to moderate levels of mortgage stress since the highs of early 2024.”