‘Mortgage stress’ highest in 15 years: Roy Morgan

New research has revealed that over 1.3 million mortgage holders were at risk of “mortgage stress” in the three months to April 2023, and this figure is expected to climb further if rates continue to rise.

Data from Roy Morgan has shown an estimated 1.38 million mortgage holders were at risk of mortgage stress during this period, making up 27.8 per cent of mortgage holders.

This is the highest number of mortgage holders considered at risk since there were over 1.4 million at risk in August 2008, the research showed.

According to Roy Morgan, this could increase to over 30.0 per cent of mortgage holders by July 2023 if the Reserve Bank of Australia (RBA) further increases the official cash rate.

Roy Morgan considers the risk of mortgage stress among mortgage holders in two ways.

Mortgage holders are considered “at risk” if their mortgage repayments are greater than a certain percentage of household income, depending on income and spending.

Mortgage holders are considered “extremely at risk” if even the “interest-only” is over a certain proportion of household income.

Roy Morgan figures revealed the proportion of mortgage holders considered at risk of mortgage stress in the three months to April 2023 is the highest for over a decade since October 2011 (28.3 per cent).

Furthermore, the number of mortgage holders at risk of mortgage stress has increased by 529,000 over the last year as the RBA increased the official cash rate at 12 of the last 13 monthly board meetings.

The official cash rate was increased to 4.10 per cent in June 2023 – the highest rate in over a decade.

Roy Morgan forecast that this rate rise could bump up the proportion of borrowers under mortgage stress to 29.2 per cent (up 1.4 percentage points) or 1,408,000 in June 2023, an increase of 30,000.

If the RBA were to raise rates by a further 25 bps in July to 4.35 per cent, there could be 30.2 per cent of mortgage holders considered at risk in July 2023, an increase of 77,000.

Roy Morgan CEO Michele Levine flagged that of greater concern is the rise in mortgage holders considered “extremely at risk”, now estimated at 881,000 (18.5 per cent of mortgage holders) in April 2023 – the highest for over a decade since October 2011 (21.4 per cent).

This is an increase of over 400,000 mortgage holders from a year ago.

“When considering the data on mortgage stress it is always important to appreciate interest rates are only one of the variables that determines whether a mortgage holder is considered at risk,” she said.

“The variable that has 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 latest figures show rising interest rates are causing a large increase in the number of mortgage holders considered at risk and further increases will spike these numbers even further. If there is a sharp rise in unemployment, mortgage stress is set to rise towards the record high of 35.6 per cent of mortgage holders considered at risk in May 2008 during the Global Financial Crisis.

“The good news is that the latest Roy Morgan employment estimates show a record 13.8 million Australians were employed in April 2023, up over 600,000 from April 2022 indicating the strength of the labour market over the last year despite the RBA’s series of interest rate increases.”

Longest period of weak home buyer sentiment since 1974

Meanwhile, the Melbourne Institute of Consumer Sentiment index data showed that the combination of higher interest rates and dwelling prices is driving a sharp fall in home buyer sentiment.

The “time to buy a dwelling” index fell 5.7 per cent to 72 in June 2023, undoing most of the previous month’s 7.4 per cent rise and continuing to hover near historical lows.

Westpac Group chief economist Bill Evans noted while these are not the lowest index reads on record, the 16-month run since March is “easily” the most prolonged period of very weak buyer sentiment he has seen since the survey began in 1974.

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