Mortgage stress hit low during state lockdowns: Roy Morgan

The research from Roy Morgan has projected 584,000 mortgage holders (15.8 per cent) were at risk of mortgage stress, or had to pay 25 to 45 per cent of their after-tax household income into their home loan, depending on income and spending.

Fewer than 600,000 mortgage holders were considered “at risk” for the first time, despite the recent lockdowns across NSW, Victoria and the ACT.

The level of stress decreased compared to a year prior, during Victoria’s long second lockdown, when an estimated 668,000 (18.3 per cent) of mortgage holders were considered at risk.

It had picked up in the three months to January, when more than 800,000 mortgage holders were thought to be at risk, but dropped off again alongside growth in employment. Roy Morgan estimated 13 million Australians were in the workforce in mid-2021, compared to under 12 million in March/April 2020.

Roy Morgan also estimated the current level of mortgage stress was more than half of what it was during the global financial crisis in 2008, when it reached a high of 35.6 per cent of mortgage holders.

But, of the mortgage holders considered “at risk” in the September quarter, almost two-thirds (357,000) or 10.3 per cent of all mortgage holders, were thought to be “extremely at risk” – paying more than a certain proportion of their household income into their home loan, based on the standard variable rate set by the Reserve Bank of Australia and the amount outstanding on their home loan.

The level of home owners at extreme risk was down from 388,000 (11.3 per cent) of mortgage holders year-on-year.

Roy Morgan noted borrowers had been bolstered by low interest rates and support measures from the government, banks and other financial institutions.

Data released by APRA has shown that as of 30 September, $11.5 billion in mortgages had been deferred during the most recent lockdowns.

Looking ahead, Michele Levine, chief executive of Roy Morgan commented on recent inflation survey data from the firm, which showed Australians expect 4.8 per cent inflation annually over the next two years – the highest for seven years since November 2014.

“The threat of rising inflation poses a direct threat to the period of record low interest rates we are currently experiencing,” she said.

“Although the RBA suggests there is no immediate prospect of raising the official interest rate many economic commentators are suggesting this will change in 2022 as inflation starts to rise. We have already seen inflation of over 6 per cent per annum recorded in the United States – more than double the comparable rate of 3.0 per cent reported by the ABS for the year to September 2021.

“If Australian inflation does increase substantially that will put upward pressure on interest rates that will in turn lead to a higher level of mortgage stress than we are currently seeing.”

Roy Morgan had also tracked the impact of COVID on employment levels, noting 72 per cent of Australians (11.2 million) had reported a change to their circumstances because of the pandemic in March 2020.

As at September 2021, while the lockdowns were still underway, around 11 million were still reporting their employment situation had changed, citing reduced hours, not having work offered, being stood down, business slowing or stopping, reduced pay or being made redundant.

For people with negative employment changes due to COVID, mortgage stress is estimated to be higher, with 18.7 per cent in mortgage stress – almost 3 percentage points higher than for all mortgage holders.

Around one in eight (12.4 per cent) of people with negative employment impacts, were thought to be “extremely at risk”.

As noted by Ms Levine, previous analysis has shown the largest driver of mortgage stress is unemployment, especially if it is sudden and has a dramatic impact on income.

Meanwhile, personal finance management platform Your Financial Wellness (YFW) has released research raising concerns around potential knock-on effects for mortgage stress when the cash rate does eventually rise.

YFW has defined mortgage stress as when a mortgage holder is required to use more than 30 per cent of income to repay a mortgage. New research from the firm projected mortgage stress will be experienced by 42 per cent of respondents from the current 27 per cent if interest rates were to rise by 2 per cent.

YFW co-founder and CEO Alex Hassall commented the data analysis shows the cost of living will be “front and centre” in 2022.

“We can see from some of the analysis we have already done that many Australian households are increasingly paying more attention to their household budgets,” Mr Hassall said.

“Affordability is becoming a big issue and it’s not just housing. We have found a strong correlation between those who have achieved the dream of home ownership and higher financial wellness and less stress, compared to those still battling to buy their first home.”

Earlier in the year, YFW released survey data from 3,000 individuals who had answered questions around their financial aspirations and socio-economic situation.

The YFW Index, which measures individuals’ perceived level of financial wellness on a scale from zero to 10, found those who own a home outright scored an average of 7.9.

Those with a mortgage scored 6.7, while people looking to buy ranked at 6.3. Those who were renting ranked at 5.1.

The average financial wellness score for Australians was 6.4.

“As we head towards a federal election, issues like housing affordability, the cost of living and financial literacy are major talking points with policy opportunities for the major political parties,” Mr Hassall said.

“And with price pressure on households increasing due to emerging factors such as higher petrol prices, what was sobering was that 40 per cent of respondents have less than a month’s salary in savings.”

The research had also found that almost half (46 per cent) of Australians had experienced some form of financial stress, with around 51 per cent sometimes worrying about meeting monthly expenses and 21 per cent often not being able to eat out or go to the movies.

Around a quarter of respondents (27 per cent) reported high or overwhelming financial stress.

Women experienced higher levels of financial stress compared to men (29 per cent versus 19 per cent).

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