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The rising cost of living and stubborn interest rates can culminate in mortgage stress. When a household struggles to manage finances and cover home loan repayments, this stress can kick in.
Fortunately, the trend is slowly on the decline, as data from Roy Morgan found that the September quarter brought those ‘at risk’ of mortgage stress down 2 per cent from the previous quarter to a total of 28.3 per cent.
According to Roy Morgan, the recent stage 3 tax cuts may be playing a role in the ease of stress and stabilisation should continue so long as the Reserve Bank Board doesn’t raise interest rates later this year.
“The latest Roy Morgan data shows 1,724,000 Australians were ‘at risk’ of mortgage stress in September 2024. Despite the fall in the share of mortgage holders at risk (28.3 per cent) this is the sixth month this year over 1.6 million were considered at risk,” said Roy Morgan CEO Michele Levine.
“The figures for September 2024 represent an increase of 917,000 considered at risk since the RBA began raising interest rates in May 2022. The figures take into account 13 rate increases which raised interest rates by a total of 4.25 per cent points to 4.35 per cent.”
There’s another portion of mortgage holders labelled ‘extremely at risk’, which currently sits at 18.3 per cent (or 1,082,000 people). With almost a fifth of mortgage holders in this category, a lot of weight rests on the RBA’s cash rate decisions.
Coupled with this is the rising inflation figures: “The latest ABS quarterly inflation figures for June 2024 showed annual inflation at 3.8 per cent – up 0.2 per cent points from March 2024, although the most recent monthly figures have shown further indications that inflation has softened in July and August. However, over the last 12 months, since September 2023, the ABS monthly inflation figure has averaged at a similar level of 3.8 per cent,” said Levine.
“Although there are signs that inflation is moderating, key inflation indicators such as petrol prices remain high – for the first time in history average retail petrol prices have been above $1.70 per litre for over two years – a record total of 108 straight weeks since late September 2022.
“For these reasons we have modelled the impact on mortgage stress of interest rate increases of +0.25 per cent to 4.6 per cent on Melbourne Cup Day, in early November, and an additional increase of +0.25 per cent to 4.85 per cent in early December.
“Two additional interest rate increases of +0.25 per cent would increase the level of mortgage stress by 61,000 from current levels to a total of 1,785,000. This would leave the share of mortgage holders considered ‘at risk’ at 29.3 per cent, up 1 per cent point from the latest figure for September.”
Despite high stress, the largest figure on record was 35.6 per cent, reached during the GFC in mid-2008.
“The crucial September quarter inflation figures are due out next week. These figures are expected to have a significant influence on the Reserve Bank’s decisions relating to interest rates over the remainder of the year and at their meetings in early November and December,” said Levine.
“Finally, it is important to appreciate that interest rates are only one of the variables that determines whether a mortgage holder is considered ‘At Risk’ – 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 550,000 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 over the last year.”
[Related: Aussies’ cost-of-living worries easing]
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