Levels of mortgage stress expected to climb further if inflation and interest rates rise again
The number of Australian mortgage holders experiencing mortgage stress has escalated, reaching a new peak in February.
According to research from Roy Morgan, 1.629 million mortgage holders, accounting for 31.4% of the total, were classified as “at risk” of mortgage stress in the three months leading up to February, marking an increase of 20,000 or 0.4% from the previous month.
This rise occurred despite the Reserve Bank’s decision to maintain interest rates at 4.35% during its February meeting.
February’s figure sets a new record for the number of mortgage holders considered ‘at risk’, surpassing the previous high of 1.609 million in January. Although the current proportion of 31.4% remains below the peak of 35.6% witnessed during the Global Financial Crisis, Roy Morgan said the increase highlights the growing pressures within the Australian mortgage market.
The report also reveals a significant surge in the number of individuals at risk of mortgage stress over the last 18 months, following a series of interest rate hikes initiated by the RBA in May 2022. Since then, an additional 822,000 Australians have been categorised as “at risk”, with official interest rates reaching 4.35%, the highest level since December 2011.
Moreover, the data indicates a notable rise in the number of mortgage holders deemed ‘extremely at risk’, now standing at 987,000, or 19.7% of all mortgage holders. This figure considerably exceeds the 10-year average of 14.3%.
Roy Morgan’s analysis also forecasts potential implications of a further interest rate increase. If the RBA were to raise rates by 0.25% in May 2024 to 4.6%, it is estimated that the number of “at risk” mortgage holders would climb to 1.639 million, representing 31.6% of the total.
The methodology employed by Roy Morgan to assess mortgage stress considers various factors, including the proportion of household income dedicated to mortgage repayments. Unemployment is also identified as a critical determinant affecting individuals’ ability to manage their mortgage payments.
“The extended pause in official interest rate increases for four months from July to 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,” said Michele Levine (pictured), chief executive of Roy Morgan.
“However, the interest rate increase in November has added renewed pressure on mortgage holders. Although inflation pressures are clearly easing, the level of inflation remains above the Reserve Bank’s preferred target range of 2% to 3% and inflation indicators such as petrol prices remain high.
“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 later this year.”
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