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As of December, 27.9 per cent of mortgage holders or 1,595,000 people were at risk of mortgage stress. This is reportedly 788,000 more people than when the RBA began increasing the cash rate in May 2022.
Meanwhile, the number of Aussies considered extremely at risk of mortgage stress now totals 973,000 people or 17.4 per cent of mortgage holders. This is far above the decade’s long-term average of 14.6 per cent.
As outlined in a Roy Morgan report, the December mortgage stress risk rate marks the second straight month of increases, but still 2.4 per cent lower than in June. Stage 3 tax cuts came into effect from 1 July, helping mitigate stress.
Tony MacRae, chief commercial officer at Bluestone Home Loans, said that brokers can help reduce the burden by being proactive with communication.
“Regularly check in with borrowers to identify any signs of financial strain early. This helps prevent issues from escalating,” he said.
Some lenders also provide hardship assistance. This can include offerings such as:
- Temporary payment deferrals or reductions.
- Switching to interest-only repayments.
- Partial payment/reduced monthly payments for an agreed period.
- Payment holiday arrangements in specific cases.
- Budget review and financial counselling.
- Borrowers can seek assistance from free financial counselling services such as the National Debt Helpline (1800 007 007) to review expenses and develop a repayment strategy.
Despite the increase in mortgage stress, we’re still far behind the record high of 35.6 per cent at risk of mortgage stress recorded in mid-2008, at the height of the global financial crisis.
A lot of weight rests upon the RBA’s upcoming cash rate call in February. With plenty of economists believing a cut is on the cards, we could see a drop in mortgage stress from next month.
According to Roy Morgan, if the RBA were to drop the cash rate to 4.1 per cent at the February meeting, the number of those at risk of mortgage stress could drop 26,000 to 1,569,000 people, hitting a total of 27.4 per cent.
By March, Roy Morgan predicts mortgage stress to drop by a further 27,000 people to 1,542,000, equivalent to 26.9 per cent of mortgage holders.
While a rate cut in February would certainly relieve mortgage holders, home prices may also surge.
“Any downward movement in interest rates would be welcomed as it would reduce repayments but also may have the impact of strengthening property prices,” said MacRae.
“However, it needs to be remembered that loan repayments are only one component of cost-of-living pressures and if customers are experiencing genuine hardship they should reach out as per the above.”
Stress has been getting progressively easier to manage due to government intervention. As outlined by Roy Morgan CEO Michele Levine, the stage 3 tax cuts introduced last July certainly helped borrowers financially. However, a lack of action from the RBA played a major role in influencing mortgage stress.
“After decreasing for four straight months following the introduction of the Stage 3 tax cuts, mortgage stress has increased during both November and December after the Reserve Bank (RBA) decided to leave interest rates unchanged during each of these months,” said Levine.
“The rapid decline in inflation over the last year has led to hope that the RBA will reduce interest rates in the months ahead. However, the RBA has stated that they are keeping an eye on so-called ‘core inflation’, also known as the ‘trimmed mean’. The latest ‘trimmed mean’ estimate for inflation for the year to December 2024 was still just above the desired target range at 3.2 per cent.
“Nevertheless, the decline in inflation pressures is evident and the RBA’s next move in interest rates is likely to be down. For these reasons we have modelled the impact on mortgage stress of a cut to interest rates of +0.25 per cent to 4.1 per cent. If the RBA cuts interest rates by +0.25 per cent in mid-February the number of mortgage holders considered ‘at risk’ of mortgage stress would decline to 1,542,000 (26.9 per cent of mortgage holders) by March 2024, a fall of 53,000 on current figures.”
[Related: Spike in the number of people seeking debt support]
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