The good news is that the proportion of mortgage holders considered ‘At Risk’ of mortgage stress early in 2022 was at less than half the rate at the height of the Global Financial Crisis in early 2009 when there was a peak of 35.6% of mortgage holders considered ‘At Risk’.
as record low interest rates, tens of billions of dollars of Government stimulus, and considerable measures taken by banks and financial institutions to support borrowers in financial distress all combined to reduce the number of mortgage holders considered ‘At Risk’ to fewer than 600,000 for the first time.
However, there has been a big change in the last few months as concerns about inflation have increased and the RBA has commenced an interest rate hiking cycle. The RBA increased interest rates for the first time in over a decade in early May by 0.25% points to 0.35% and in early June by 0.50% to 0.85%, the largest increase to interest rates in over two decades since February 2000.
Mortgage Stress – Owner-Occupied Mortgage-Holders
Source: Roy Morgan Single Source (Australia), average interviews per 3 month period April 2007 – March 2022, n=2,685.
Base: Australians 14+ with owner occupied home loan.
Mortgage Risk set to increase to nearly 1-in-5 mortgage holders over next few months
The RBA decision to increase interest rates by 0.75% over the last two months means official interest rates are now at 0.85% - and set to move higher still over the next few months.
Roy Morgan has modelled the direct impact of the existing interest rate increase of 0.75% on mortgage holders as well as the expected interest rate increases of 0.5% during each of the next two months.
The interest rate increases already made by the RBA mean that 18.3% of mortgage holders, 796,000, would now be classified as ‘At Risk’ – an increase of 34,000 on the original figure of 762,000 (17.5%).
If the RBA increases interest rates by 0.5% in each of the next two months this would mean 19.4% of mortgage holders, 843,000, would then be classified as ‘At Risk’ – an increase of 81,000. This would be the most mortgage holders classified as ‘At Risk’ since the March quarter 2021 just over a year ago.
Mortgage Risk at different level of interest rate increases
Source: Roy Morgan Single Source (Australia), January-March 2022, n=2,987. Base: Australians 14+ with owner occupied home loan.
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.
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.
Michele Levine, CEO Roy Morgan, says mortgage stress has been at new lows as record low interest rates and large levels of pandemic support from the Government and banks have protected those with home loans, but that looks set to change as interest rates begin to rise:
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