‘Mortgage stress’ at record lows during the 2021 lockdowns in NSW, Victoria and the ACT

‘Mortgage stress’ dropped to record lows during this period with fewer than 600,000 mortgage holders considered ‘At Risk’ for the first time. The level of mortgage stress is down on a year ago during Victoria’s long second lockdown when an estimated 668,000 mortgage holders (18.3%) were considered ‘At Risk’.

The low rate of ‘At Risk’ mortgages during this period continues the trends seen during the pandemic in which record low interest rates, record levels of Government financial support, and considerable measures taken by banks and financial institutions to support borrowers in financial distress have combined to lower ‘mortgage stress’ to record lows. Mortgage stress today is at less than half the level it was during the Global Financial Crisis in 2008 when it reached a high of 35.6% of mortgage-holders.

Although the level of financial support provided by Governments, banks and financial institutions is not at the same level as that provided during the nation-wide lockdowns of 2020 it is measured in the tens of billions of dollars.

Since June 2021 Services Australia has paid out over $11.9 billion to Australians as part of the ‘COVID-19 Disaster Payment’ and data released by APRA (Australian Prudential Regulation Authority) shows that as of September 30, 2021, mortgages to the value of $11.5 billion were deferred during the most recent lockdowns.

Mortgage Stress – Owner-Occupied Mortgage-Holders

Source: Roy Morgan Single Source (Australia), average interviews per 3 month period April 2007 – September 2021, n=2,675. Base: Australians 14+ with owner occupied home loan.

Roy Morgan has also tracked the impact of COVID-19 on the employment situations of Australians. In May 2020, 11.2 million working Australians (72%) reported a change to their employment circumstances because of COVID-19, and in September 2021, during the recent lockdowns in Melbourne and Sydney there were still over 11 million reporting their employment situation had changed – see more detail here.

Many of these employment changes are negative and include having ‘work hours reduced’, ‘not having any work offered’, ‘have been stood down for a period of time’, ‘business has slowed or stopped completely’, ‘had pay reduced for the same number of work hours’ or being ‘made redundant’.

For Australians with negative employment changes due to COVID-19 mortgage stress is higher with 18.7% now in ‘mortgage stress’ – almost 3% points higher than for all mortgage holders. In addition, around one-in-eight, 12.4%, are ‘extremely at risk’.

Mortgage Risk for those with negative employment changes due to COVID-19

“The latest Roy Morgan data into the Australian housing market shows mortgage stress was at near record lows in the three months to September 2021 as a range of factors lessened the pressure on mortgage holders despite the renewed lockdowns in NSW, Victoria and the ACT.

“Analysis of economic factors and mortgages stress since before the Global Financial Crisis (GFC) has constantly shown that while the single biggest driver of mortgage stress is unemployment – especially sudden unemployment that has an immediate and dramatic on income – interest rates, and economic conditions have some impact on mortgage stress.

“The last year or so has seen low interest rates, but the real reason we see such low levels of mortgage stress is the Government support and mortgage deferrals for those mortgage holders who would otherwise have been ‘At Risk’.

“The recent lockdowns, caused by a widespread outbreak of the Delta variant which began in Sydney in June, led to another round of extensive financial support. The Federal Government’s ‘COVID-19 Disaster Payments’ have delivered over $11.9 billion to Australians in financial distress since June while APRA’s figures to September 30, 2021 show mortgages to the value of $11.5 billion have been deferred during the recent lockdowns.

“This support, combined with strong employment growth during the first half of 2021, means that in the three months to September 2021 there were 584,000 mortgage holders considered ‘At Risk’ (15.8% of all mortgage holders) and 357,000 considered ‘Extremely at Risk’ (10.3% of mortgage holders). Both of these measures reached record lows during the recent lockdowns.

“The end of the lockdowns in recent weeks signals we are now moving into a ‘COVID-normal’ period during which a highly vaccinated population will be protected against the spread over the virus even as it circulates in the community.

“The move into ‘COVID-normal’ has already happened in NSW and Victoria, but other States such as Queensland, South Australia and Tasmania are only set to reach ‘COVID-normal’ in the next few weeks as they relax their domestic borders. Western Australia is even further behind with no commitment to relax its domestic border controls until next year.

“This new period of ‘COVID-normal’ should mean no more lockdowns, but that also means there will be no more emergency support from Federal and State Governments and a big reduction in the financial support and mortgage deferrals provided by banks and financial institutions.

“In addition to the reduction in financial support there is also the prospect of rising inflation to deal with. The latest Roy Morgan Inflation Expectations for October show Australians expect inflation of 4.8% 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. The RBA lowered interest rates to a record low of only 0.1% in November 2020 and they have been there ever since.

“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 annum recorded in the United States – more than double the comparable rate of 3.0% 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.”