Record number of Aussie mortgage holders teetering on the edge of stress

The Australian housing market is facing a concerning trend as a record number of mortgage holders are now considered ‘at risk’ of mortgage stress. According to market research firm Roy Morgan, the situation has reached a critical point, with 1.5 million Australians, or 29.2% of mortgage holders, currently at risk. This surpasses the previous high of 1.46 million people deemed to be at risk during the global financial crisis in May 2008.

The analysis covered the three months leading up to July 2023, a period that saw two interest rate hikes of 0.25%, bringing the official rates to 4.1%. The number of households at risk of mortgage stress has increased by 642,000 after a year of interest rate hikes. However, it’s worth noting that while the number of Australians at risk is higher than during the global financial crisis, the proportion is actually lower due to population growth. During the GFC, 35.6% of Australians were experiencing mortgage stress.

Roy Morgan’s CEO, Michele Levine, highlighted that the number of people considered ‘extremely at risk’ of mortgage stress has also increased. As of July 2023, an estimated 1,017,000 mortgage holders, or 20.3%, are extremely at risk. This is the highest number in over 15 years and represents an increase of over 470,000 mortgage holders, or 7.6%, from a year ago.

While some economists believe that the Reserve Bank of Australia (RBA) might be at the end of its tightening cycle, Levine suggests that there are factors that could prompt further rate increases. She noted that although the quarterly Consumer Price Index (CPI) figure has dropped, new inflationary pressures are building in the economy. The CPI figures for the year to June 2023 show Australian inflation dropping to 6%, down from a cycle high of 7.8% in the year to December 2022.

“The low Australian dollar and high petrol and energy prices adding to inflation may force their hand for further interest rate increases in the months ahead,” Levine commented. Roy Morgan has even produced modelling for two further interest rate rises. If the RBA does decide to raise interest rates again by 0.25%, the firm forecasts that mortgage stress will increase further, affecting over 1.57 million mortgage holders, or 30.2%, by September 2023.

The situation is alarming, especially considering that approximately a third of Australians are paying off a mortgage, while the rest either rent or own their homes outright. The rising number of Australians at risk of mortgage stress is a significant concern for policymakers, financial institutions, and, most importantly, the individuals and families who are directly affected.

The current trends in mortgage stress are not just a result of interest rate hikes but also reflect broader economic pressures, including inflation and energy costs. As the RBA contemplates its next move, the stakes are high for millions of Australians who are already struggling to keep up with their mortgage payments. With the potential for further rate increases on the horizon, the situation could become even more precarious in the coming months.