‘Mortgage stress’ the highest since April

Oksana Patron

24 November 2022

‘Mortgage stress’ increased in the three months to October to its highest level since April 2018 with 22.6% of mortgage holders now considered ‘at risk’, according to Roy Morgan’s research.

However, the proportion of mortgage holders considered ‘at risk’ of mortgage stress (1,013,000) during that time still remained well below the high reached during the Global Financial Crisis in early 2009 of 35.6% (1,455,000 mortgage holders).

At the same time, the number of mortgage holders considered ‘extremely at risk’, now increased to 619,000 (14.4%) in the three months to October 2022 which remained clearly below the long-term average over the last 15 years of 659,000 (15.9%).

Since then, there was another interest rate increase of +0.25% in November which has taken official interest rates now to 2.85%, the highest official interest rates for over nine years since May 2013.

According to the study, mortgage risk was set to increase to over 1-in-4 mortgage holders (over 1.1 million) by January, 2023.

Roy Morgan modelled the impact of three potential interest rate increases in December of +0.25% to 3.1%, +0.4% to 3.25% and +0.5% to 3.35% and projected how these different sized increases would impact the number of mortgage holders that would be considered ‘At Risk’ by January 2023.

The findings were as following:

• if the RBA raises interest rates by +0.25% in December to 3.1% there will be 25.1% (up 2.5% points) of mortgage holders, 1,123,000, considered ‘At Risk’ in January 2023 – an increase of 110,000.
• if the RBA raises interest rates by +0.40% in December to 3.25% there will be 25.3% (up 2.7% points) of mortgage holders, 1,132,000, considered ‘At Risk’ in January 2023– an increase of 119,000.
• if the RBA raises interest rates by +0.50% in December to 3.35% there will be 25.4% (up 2.8% points) of mortgage holders, 1,136,000, considered ‘At Risk’ in January 2023– an increase of 123,000.

Michele Levine, chief executive of Roy Morgan, said that of more concern was the rise in those mortgage holders considered ‘extremely at risk’, now estimated at 619,000 (14.4%) in October 2022 – the highest since May 2019, before anyone had even heard of the ‘Coronavirus’ or ‘COVID-19’.

“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,” he said.

“These figures show 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.

“The latest Roy Morgan employment estimates show a near-record 13.5 million Australians were employed in October 2022,up by around 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 1.36 million unemployed Australians (9.2% of the workforce) compared to 1.17 million pre-pandemic.”

 The Roy Morgan’s Single Source Survey was based on in-depth interviews conducted with over 60,000 Australians each year including over 10,000 owner-occupied mortgage-holders.