Mortgage stress hits 10-year high: Roy Morgan

Mortgage stress has risen to its highest level since July 2013, market researcher Roy Morgan has confirmed.

The result has documented the impact to Australian mortgagors following Reserve Bank of Australia (RBA) central bank cash rate rises since May last year and the ensuing higher home loan interest rates from most lenders.

Strikingly, the new research showed an estimated 1.1 million mortgage holders (23.9 per cent) were ‘at risk’ of ‘mortgage stress’ in the three months to December 2022.

As Roy Morgan highlighted, this period encompassed three interest rate increases of 0.25 per cent, taking official interest rates to 3.1 per cent in early December — the highest official cash rates for a decade since December 2012.

For the first time in this cycle of interest rate increases, the proportion of mortgage holders now considered ‘at risk’ of mortgage stress (23.9 per cent) is above the long-term average of 22.8 per cent stretching back to early 2007, Roy Morgan confirmed.

However, despite the sharp increase in the level of mortgage stress during the last year, the overall number remains well below the high reached during the global financial crisis (GFC) in early 2009 of 35.6 per cent (1,455,000 mortgage holders), it compared.

Mortgage stress dropped to record lows during 2021, as record low interest rates, tens of billions of dollars of government stimulus, and the measures taken by banks and financial institutions to support borrowers in financial distress combined to reduce the number of mortgage holders considered ‘at risk’, Roy Morgan outlined.

It added that the number of mortgage holders considered ‘extremely at risk’ has now increased to 666,000 (15.0 per cent) in the three months to December 2022 that is now in line with the long-term average over the past 15 years of 659,000 (15.9 per cent), it stated.

And the hits just keep on coming

According to the researcher, mortgage risk is set to increase to over 1.2 million (26.3 per cent) of mortgage holders by March 2023.

Currently, official RBA interest rates are at a decade high of 3.1 per cent.

Following this week’s December 2022 ABS CPI figure of 7.8 per cent, economists’ outlooks are firming there will be no respite and expecting the central bank to increase the rate again at its next board meeting on 7 February.

In that context, Roy Morgan has modelled the impact of two potential RBA interest rate increases of +0.25 per cent in each of the next two months of February (+0.25–3.35 per cent) and March (to 3.6 per cent).

With December’s result of 23.9 per cent of mortgage holders, 1.1 million were considered ‘at risk’ and this is set to increase to over one-in-four mortgage holders by March 2023 with the expected future interest rate increases to come.

If the RBA raised interest rates by +0.25 per cent in February to 3.35 per cent, there will be 24.7 per cent (up 0.8 per cent points) of mortgage holders or 1,139,000 considered ‘at risk’ in February 2023 — an increase of 139,000, Roy Morgan explained.

If the RBA raised interest rates by a further +0.25 per cent in March to 3.6 per cent, there will be 26.3 per cent (up 2.4 per cent points) of mortgage holders or 1,213,000 considered ‘at risk’ in March 2023 — an increase of 213,000, the researcher calculated.

Losing the main source of income

Roy Morgan has made clear though that “this is a conservative model” that is “essentially assuming all other factors remain the same”.

It explained that it is already seeing an increase in unemployment (Australian unemployment increased to 9.3 per cent in December in line with the usual seasonal trends — 19 January 2023).

“The greatest impact on an individual, or household’s, ability to pay their mortgage is not interest rates, it’s if they lose their job or main source of income,” it warned.

Mortgage stress is continuing to increase in Australia as the RBA continues to lift interests and is set to mean over 1.2 million mortgage holders will be considered ‘at risk’ if the RBA raises interest rates in each of the next two months, commented Roy Morgan chief executive Michele Levine.

“The latest Roy Morgan data shows mortgage stress in the Australian housing market has continued to increase,” said Ms Levine.

“The figures for December 2022 take into account all eight of the RBA’s interest rate increases so far, which have lifted official interest rates from 0.1 per cent in early May to end the year at 3.1 per cent — the highest level of official interest rates for exactly a decade since December 2012.

“For the first time in this cycle of … increases, the proportion of mortgage holders considered ‘at risk’ has increased above the long-term average of 22.8 per cent and is at its highest for nearly a decade since May 2013.

“Of more concern is the rise in mortgage holders considered ‘extremely at risk’, now estimated at 666,000 (15.0 per cent) in December 2022 — the highest since July 2017 (15.1 per cent) more than five years ago.

“When considering these figures on mortgage stress it is always important to take into account that 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 category is related to household income — which is directly related to employment.

“The latest figures on mortgage stress show that as long as employment levels remain strong, the number of mortgage holders considered ‘at risk’ will not increase to anywhere near the levels experienced during the global financial crisis in 2007–08–09, when a peak of 35.6 per cent of mortgage holders were considered ‘at risk’ in May 2008.”

[Related: Gambling ‘false hope’ for mortgage shortfall, flags Costello]