Record high number of Aussies to face mortgage stress

A record high number of 1.5 million Australians, who represent almost 30% of all mortgage holders, are now ‘at risk’ of ‘mortgage stress’, according to Roy Morgan’s research. 

The research, which covered the period of the three months to July 2023, encompassed two interest rate increases of 0.25% and set a new record compared to the previous 1.46 million of Aussies who faced the mortgage stress in three months to May, 2008. 

With official interest rates at 4.1% in August, 2023, the number of Australians “at risk” of mortgage stress increased by 642,000 over the last year which followed the decision of the Reserve Bank of Australia (RBA) to increase interest rates at 12 of the last 15 monthly meetings. 

At the same time, the number of mortgage holders considered “extremely at risk” increased by 1,017,000 (20.3%) and currently sits significantly above the long-term average over the last 15 years of 15.4%. 

According to Mortgage Risk’s modelled impact of two potential RBA rate increases of +0.25% in both September and October, the number of Australian mortgage holders considered “at risk” would further increase to over 30% by September 2023. 

If the RBA raises interest rates by a further +0.25% in October to 4.6% there will be 30.7% (up 1.5% points) of mortgage holders, 1,604,000, considered ‘At Risk’ in October 2023 – an increase of 108,000, it said. 

The research also found that unemployment was the factor which had the largest impact on income and mortgage stress.

Michele Levine, chief executive of Roy Morgan, said that although a drop in the quarterly CPI figure was welcome, there were new inflationary pressures building in the economy.

“Therefore, although many have suggested the RBA has finished its cycle of interest rate increases, the low Australian Dollar and high petrol and energy prices adding to inflation may force their hand for further interest rate increases in the months ahead,”‘ she said.

“These possibilities are a key factor in why we have modelled two further interest rate increases in September and October.

“If the RBA does raise interest rates again next week by 0.25% Roy Morgan forecasts mortgage stress is set to increase to over 1.57 million mortgage holders (30.2%) considered ‘At Risk’ by September 2023.

Levine also said that of even more concern was the rise in mortgage holders considered ‘extremely at risk’, which was now estimated as the highest for over 15 years since July 2008 (26.2%).

“The latest figures on mortgage stress show that rising interest rates are causing a large increase in the number of mortgage holders considered ‘At Risk’ and further increases will spike these numbers even further, she stressed.

” 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’. 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.

“If there is a sharp rise in unemployment, mortgage stress is set to increase towards the record high of 35.6% of mortgage holders considered ‘At Risk’ in May 2008 during the GFC.”