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If the RBA increases next month, almost one-third of mortgage holders will be stressed by repayments, Roy Morgan says.
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Another rate raise ‘to put a further 75k mortgages at risk’
23 November 2023
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10 minute read
More than 1.5 million mortgage holders are at risk of financial stress and a further 75,000 will join them by January if the RBA raises interest rates as expected next month, Roy Morgan says.
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The survey group said its modelling showed more than 700,000 had joined the at-risk group since the RBA began raising rates last year and its latest figures, for October, failed to take in the increase on Melbourne Cup Day to 4.35 per cent.
Roy Morgan CEO Michele Levine said four months of unchanged rates had eased pressure slightly on mortgage-holders but interest was just one of the factors that pressured those with home loans.
“The latest figures for October show that when considering the data on mortgage stress, it is always important to appreciate interest rates are only one of the variables that determines whether a mortgage holder is considered ‘at risk’ of mortgage stress,” she said.
The largest impact on borrowers related to household income and employment, and the labour market had been performing strongly. But that positive trend had to be weighed against price increases.
“The average retail petrol price has averaged above $1.90 per litre for a record 15 straight weeks since early August – beating a previous record run at such a high price in May-July 2022,” she said.
“During mid-2022 inflation expectations increased rapidly from 5.3 per cent to 5.9 per cent, up 0.6 per cent points. The latest weekly inflation expectations data for mid-November shows the measure at 5.6 per cent for the week to November 19 – up a large 0.7 per cent points since mid-September.
“These pressures are a key factor for why we have modelled another interest rate increase in December. If the RBA does raise interest rates by 0.25 per cent in December, Roy Morgan forecasts mortgage stress is set to increase to over 1.58 million mortgage holders (31.6 per cent) considered ‘at risk’ by early next year.”
She said the current total at risk of 1,514,000 represented “a substantial increase of 707,000 mortgage holders” since the RBA began its series of interest rate increases in May 2022.
“The figures take into account the interest rate increases from May 2022 to June 2023, but not the most recent increase in early November. The extended pause in official interest rate increases from July-October 2023 has played a part in reducing mortgage stress in the latest figures.
“A close analysis of the underlying factors shows that a combination of factors led to the easing of mortgage stress in the latest figures. Over the last several months, household incomes and employment have both increased strongly while there’s been a reduction in the amounts borrowed and outstanding.
“While banks are less likely to lend to those who might be ‘stretched’, people seem to be doing everything to reduce their mortgage such as downsizing and selling other assets.”
Ms Levine said the days of funding home improvements, travel, school fees and other lifestyle choices from home loans were over.
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