How are mortgage holders considered ‘At Risk’ or ‘Extremely At Risk’ determined?
Roy Morgan considers the risk of ‘mortgage stress’ among Mortgage holders in two ways:
Mortgage holders are considered ‘At Risk’1 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’2 if even the ‘interest only’ is over a certain proportion of household income.
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1"At Risk" is based on those paying more than a certain proportion of their after-tax household income (25% to 45% depending on income and spending) into their home loan, based on the appropriate Standard Variable Rate reported by the RBA and the amount they initially borrowed.
2"Extremely at Risk" is also based on those paying more than a certain proportion of their after-tax household income into their home loan, based on the Standard Variable Rate set by the RBA and the amount now outstanding on their home loan.
A near record low of only 15.8% of mortgage holders were ‘At Risk’ in September 2021 as mortgage stress plummeted during 2021
In the three months to September 2021, only 15.8% of mortgage holders were ‘At Risk’ (584,000) which is down significantly on a year ago during Victoria’s long second lockdown. In the three months to September 2020 there were 668,000 (18.3%) mortgage holders ‘At Risk’ – the low point for 2020.
The number of mortgage holders ‘At Risk’ increased from the low point a year ago as financial support was gradually withdrawn and peaked at above 800,000 over the summer months when the Northern Beaches area of Sydney was placed into a three-week lockdown and there was concern the whole city would be placed into an extended lockdown.
After peaking in the three months to January 2021 the number of mortgage holders considered ‘At Risk’ has dropped consistently during 2021 as strong employment growth led to a record number of over 13 million Australians employed for the first time in mid-2021. This compares to total employment of under 12 million in March/April 2020 at the start of the pandemic.
Almost two-thirds of ‘At Risk’ mortgage holders are considered ‘Extremely At Risk’
Of the mortgage holders considered ‘At Risk’ in the three months to September 2021 (584,000), almost two-thirds, 357,000 or 10.3% of all mortgage holders, were considered ‘Extremely at Risk’. This is down from 388,000 (11.3%) mortgage holders ‘Extremely at Risk’ a year ago in the three months to September 2020.
The trend of mortgage holders considered ‘Extremely at Risk’ has followed a similar trend to the larger group considered ‘At Risk’ since the pandemic began. There was an initial spike in mortgage holders considered ‘Extremely at Risk’ during the early period of the pandemic before extensive Government support and mortgage holidays for those in financial distress kicked in to support the economy.
The number of mortgage holders considered ‘Extremely at Risk’ increased towards the end of 2020 as financial support to the economy was withdrawn and peaked at 526,000 (13.7%) in the three months to January 2021. The strong employment growth during the first half of 2021, record low interest rates and significant financial support from Government and banks during the recent lockdowns have all contributed to lowering the number of mortgage holders considered ‘Extremely at Risk’ to record lows.
These are the latest findings from Roy Morgan’s Single Source Survey, based on in-depth interviews conducted with over 50,000 Australians each year including over 10,000 owner-occupied mortgage-holders.
Michele Levine, Chief Executive Roy Morgan, says mortgage stress has dropped to record lows in the three months to September 2021 as record low interest rates and tens of billions of dollars of support from Government and financial companies cushion the impact of lockdowns: