Mortgage stress continued to ease in November, even with the Reserve Bank raising interest rates on Melbourne Cup Day, new research by Roy Morgan has revealed.
The data indicated that 1,490,000 mortgage holders (29.9%) were “at risk” of mortgage stress in the three months to November.
“This represented a second successive monthly decline in mortgage stress, down 83,000 from September 2023,” said Michele Levine (pictured above), CEO of Roy Morgan. “However, the latest figure is still up 683,000 mortgage holders over the last 18 months since the RBA began raising interest rates in May 2022.”
Factors contributing to the easing of mortgage stress included increased household incomes, higher employment rates, and reduced loan amounts outstanding.
“While banks are less likely to lend to those who might be ‘stretched’, people with mortgages tend to do everything within their power to reduce their mortgage size including by downsizing and selling other assets to maintain their mortgage payments and avoid defaulting,” Levine said.
“When home loan interest rates were low during the pandemic, people used their home loans to fund what we might call the ‘business of life’ – small businesses, trips, home improvements, school fees, second and holiday homes etc. etc. During this period home loans were a cheap form of financing. The increase in interest rates has encouraged people to think again about this kind of funding – and they’re making different choices.”
Despite the improvement, the number of Australians “at risk” of mortgage stress has increased by 683,000 since May 2022 when the RBA initiated a cycle of interest rate increases. The current figure of 1,490,000 remained close to the record high reached in September 2023 (1,573,000), while the percentage of 29.9% remained significantly below the record high observed during the Global Financial Crisis, due to the expanded size of the current Australian mortgage market.
The Roy Morgan data showed that 934,000 mortgage holders (19.3%) are considered “extremely at risk,” significantly above the long-term average over the last 10 years.
Roy Morgan has modeled the potential impact of a further RBA interest rate increase of +0.25% in February. If implemented, it is estimated that the number of mortgage holders “at risk” would rise to 1,530,000 (30.8%) in February.
The analysis considers various variables, with unemployment identified as a key factor impacting household income and mortgage stress. The latest Roy Morgan unemployment estimates for November revealed that nearly one in five Australian workers are either unemployed or under-employed.
However, the forecast of another interest rate increase in February raises concerns, with potential implications for mortgage stress levels despite recent improvements.
The insights are derived from Roy Morgan's Single Source Survey, incorporating in-depth interviews with over 60,000 Australians annually, including more than 10,000 owner-occupied mortgage holders.
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