September 20, 2022

‘Mortgage stress’ is growing in 2022 and set to rise further as the RBA continues to increase interest rates

Topic: Press Release
Finding No: 9078
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New research from Roy Morgan shows an estimated 854,000 mortgage holders (19.4%) were ‘At Risk’ of ‘mortgage stress’ in the three months to July 2022. This period encompassed the first three interest rate increases from the RBA in May (+0.25%), June (+0.50%) and July (+0.50%) with official interest rates hitting 1.35% in early July.

Official interest rates in July were at their highest for over three years since June 2019 and since then interest rates have increased in both August (+0.5%) and September (+0.5%) to 2.35% and are set to increase again in early October. Another interest rate increase of +0.5% points in October would take official interest rates to 2.85% - the highest official interest rates would have been since May 2013.

The good news is that the proportion of mortgage holders considered ‘At Risk’ of mortgage stress in mid-2022 is well below the high reached during the Global Financial Crisis in early 2009 of 35.6% (1,455,000 mortgage holders) and below the average of the last decade of 20.8% (904,000).

‘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’.

There has been a similar trend for mortgage holders considered ‘Extremely At Risk’, with only 12.7%, or 542,000, in this group in the three months to July 2022, below the average of the last decade of 13.9% (585,000 mortgage holders).

Mortgage Stress – Owner-Occupied Mortgage-Holders

Source: Roy Morgan Single Source (Australia), average interviews per 3 month period April 2007 – July 2022, n=2,694.
Base: Australians 14+ with owner occupied home loan.

Mortgage Risk set to increase to nearly 1-in-4 mortgage holders by November

The RBA decision to increase interest rates by 0.5% in both August and September means official interest rates are now at 2.35% - and set to move higher still over the next few months.

Roy Morgan has modelled the impact of the existing interest rate increases in August and September (+1%) on mortgage holders as well as potential interest rate increases of 0.5% during each of the next two months.

The interest rate increases already made by the RBA mean that 20.8% of mortgage holders, 942,000, would now be classified as ‘At Risk’ – an increase of 88,000 on the original figure of 854,000 (19.4%) and the highest number of mortgage holders classified as ‘At Risk’ for over three years since May 2019.

If the RBA increases interest rates by 0.5% in each of the next two months this would mean 24.3% of mortgage holders, 1,100,000, would then be classified as ‘At Risk’ – an increase of 246,000 on July 2022. This would be the most mortgage holders classified as ‘At Risk’ since July 2013 just over nine years ago.

Mortgage Risk at different level of interest rate increases

Source: Roy Morgan Single Source (Australia), May - July 2022, n=3,129. 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.

Michele Levine, CEO Roy Morgan, says mortgage stress is on the rise during 2022 as the RBA embarks on its first interest rate increasing cycle in over a decade, but still remains below long-term averages in September despite five straight monthly increases:

Block Quote

“The latest Roy Morgan data into the Australian housing market shows mortgage stress is up during 2022 with 854,000 mortgage holders (19.4%) now defined as ‘At Risk’ in July 2022, up 171,000 on a year ago during a period of extensive lockdowns in NSW and Victoria.

“The figures for July take into account the first three interest rate increases by the RBA in May (+0.25%), June (+0.5%) and July (+0.5%). If the most recent interest rate increases in August (+0.5%) and September (+0.5%) are considered the estimated number of mortgage holders considered ‘At Risk’ increases by 88,000 to 942,000 – the highest since May 2019.

“As of today, official interest rates are at 2.35%, the highest they have been for over seven years since early 2015. Even so, with just over one-in-five mortgage holders considered ‘At Risk’ in September 2022 (20.8%), the level of mortgage stress is still below the long-term average over the last 15 years of 22.7% of mortgage holders considered ‘At Risk’ since October 2007.

“Looking forward, RBA Governor Philip Lowe has stated there will be further interest rate increases to come in the next few months. Modelling by Roy Morgan shows that with two additional interest rates increases of +0.5% in both October and November the number of mortgage holders considered ‘At Risk’ would rise by 158,000 to 1.1 million (24.3%) – the highest since July 2013.

“Of more concern is the rise in those mortgage holders considered ‘Extremely At Risk’, now estimated at 620,000 (14.1%) in September 2022 – the highest since May 2019, before anyone had even heard of the ‘Coronavirus’ or ‘COVID-19’.

“It’s important to consider that interest rates are but one variable that determines whether a mortgage holder is considered ‘At Risk’. 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.

“These figures suggest 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 well over 30% of mortgage holders were considered ‘At Risk’ – including a peak of 35.6% in May 2008.

“The latest Roy Morgan employment estimates show a record 13.5 million Australians were employed in August 2022, up by around 600,000 since February 2020 when there were 12.9 million employed pre-pandemic. The strong growth in the jobs market has attracted more Australians into the labour force and there are a further 1.36 million Australians now unemployed (9.2% of the workforce) compared to 1.17 million (8.3%) pre-pandemic.”

These are the latest findings from Roy Morgan’s Single Source Survey, based on in-depth interviews conducted with over 60,000 Australians each year including over 10,000 owner-occupied mortgage-holders.

To understand more about mortgages in the full context of household finances and the uncertainties caused by the COVID-19 coronavirus, ask Roy Morgan.

For comments or more information please contact:
Roy Morgan - Enquiries
Office: +61 (03) 9224 5309
askroymorgan@roymorgan.com

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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.

Margin of Error

The margin of error to be allowed for in any estimate depends mainly on the number of interviews on which it is based. Margin of error gives indications of the likely range within which estimates would be 95% likely to fall, expressed as the number of percentage points above or below the actual estimate. Allowance for design effects (such as stratification and weighting) should be made as appropriate.

Sample Size Percentage Estimate
40% – 60% 25% or 75% 10% or 90% 5% or 95%
1,000 ±3.0 ±2.7 ±1.9 ±1.3
5,000 ±1.4 ±1.2 ±0.8 ±0.6
7,500 ±1.1 ±1.0 ±0.7 ±0.5
10,000 ±1.0 ±0.9 ±0.6 ±0.4
20,000 ±0.7 ±0.6 ±0.4 ±0.3
50,000 ±0.4 ±0.4 ±0.3 ±0.2

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