Mortgage stress levels hit 18-month low as household incomes rise

Australian mortgage holders facing financial stress have fallen to the lowest level since February 2023, according to new research from Roy Morgan.

The proportion of borrowers considered “at risk” dropped to 26.2 per cent over the three months to October 2024, down 4.1 per cent since June when stage 3 tax cuts boosted household incomes.

The decline marked the fourth consecutive month of easing mortgage stress, despite interest rates sitting at a 13-year high of 4.35 per cent.

Roy Morgan CEO Michele Levine said falling inflation had sparked hopes of interest rate relief.

“However, the RBA has stated that they are keeping an eye on so-called ‘core inflation’, also known as the ‘trimmed mean’. The latest ‘trimmed mean’ estimate for inflation for the year to September 2024 was still above the desired target range at 3.5 per cent,” she said.

The number of borrowers considered “extremely at risk” reached 928,000, representing 16.7 per cent of mortgage holders – above the decade average of 14.6 per cent.

Since the Reserve Bank began lifting rates in May 2022, an additional 680,000 borrowers have fallen into the “at risk” category.

Roy Morgan projected that mortgage stress levels could decline further if interest rates are cut, though most economists consider a December reduction unlikely.

The research firm’s modelling showed the number of stressed borrowers could drop to 1,475,000 by December if rates were cut to 4.1 per cent, representing 25.7 per cent of mortgage holders.

Levine noted that multiple factors influence mortgage stress beyond interest rates.

“It is important to appreciate that interest rates are only one of the variables that determines whether a mortgage holder is considered ‘At Risk’ – the largest impact on whether a borrower falls into the ‘At Risk’ category is related to household income – which is directly related to employment,” she said.