‘Mortgage stress’ set to rise as interest rates continue to rise in second half of 2022

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The good news is that the proportion of mortgage holders considered “at risk” of mortgage stress in early 2022 was 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 historically low interest rates, tens of billions of dollars in government stimulus, and sweeping steps taken by banks and financial institutions to support financially distressed borrowers have all combined to reduce the number of incumbents mortgage loans considered “at risk” to less than 600,000 for the first time.

There was a similar trend for mortgage holders considered ‘extremely risky’, with just 10.7%, or 438,000, in this group in the three months to March 2022, near a record low. .

However, there has been a big change in the past few months as inflation concerns have increased and the RBA has entered a cycle of interest rate hikes. The RBA raised interest rates for the first time in more than a decade in early May from 0.25% to 0.35% and in early June from 0.50% to 0.85%, the biggest increase in interest rates in more than two decades since February 2000.

Mortgage stress – Owner-occupied mortgage holders

Source: Roy Morgan Single Source (Australia), average interviews per 3 month period from April 2007 to March 2022, n=2,685.
Base: Australians aged 14 and over with owner-occupied mortgage.

Mortgage risk is expected to increase to almost 1 in 5 mortgage holders in the coming months

The RBA’s decision to raise interest rates by 0.75% over the past two months means that official interest rates are now at 0.85% – and are expected to rise further over the next few months.

Roy Morgan modeled the direct impact of the current interest rate increase of 0.75% on mortgage holders as well as the expected interest rate increases of 0.5% during each of the two coming months.

Interest rate hikes already made by the RBA mean that 18.3% of mortgage holders, or 796,000, would now be classified as ‘at risk’, an increase of 34,000 from the original figure of 762 000 (17.5%).

If the RBA raises interest rates by 0.5% in each of the next two months, that would mean that 19.4% of mortgage holders, or 843,000, would then be classified as ‘at risk’, or an increase of 81,000. That would be the highest number of mortgage holders classified as “at risk” since the March 2021 quarter just over a year ago.

Mortgage risk at different levels of rising interest rates

Source: Roy Morgan Single Source (Australia), January-March 2022, n=2,987. Base: Australians aged 14 and over with owner-occupied mortgage.

How are mortgage holders considered “at risk” or “extremely at risk” determined?

Roy Morgan views the risk of “mortgage stress” among mortgage holders in two ways:

Mortgage holders are considered “at risk”1 whether their mortgage payments are above a certain percentage of household income – based on income and expenses.

Mortgage holders are considered ‘extremely at risk’2 if even “interest alone” exceeds a certain proportion of household income.

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1“At risk” is based on those who pay more than a certain proportion of their after-tax household income (25% to 45% depending on income and expenses) in their home loan, based on the appropriate standard variable rate reported by the RBA and the amount they originally borrowed.

2“Extremely at risk” is also based on those who pay 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 currently outstanding on their home loan. .

Michele Levine, CEO Roy Morgan, says mortgage stress has reached new lows as historically low interest rates and significant levels of pandemic support from government and banks have shielded those with home loans, but it should change as interest rates begin to rise:

For comments or more information, please contact:
Roy Morgan – Information

Office: +61 (03) 9224 5309
[email protected]

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