Over 8 million at risk since rate hikes began

New research from Roy Morgan reveals that more than 8 million Australians are currently at risk of mortgage stress as interest rate hikes take their toll. 

The study highlights a significant surge in mortgage stress in January following the Reserve Bank of Australia’s decision to raise rates in November, pushing the figure to a record high above 1.6 million. This escalation represents a substantial increase since May 2022 when the RBA initiated a cycle of interest rate hikes, resulting in 802,000 Australians facing potential mortgage stress.

Currently, 1,609,000 mortgage holders, accounting for 31.0% of the market, are deemed ‘At Risk’ as their mortgage repayments exceed a certain proportion of household income. Additionally, 994,000 mortgage holders, or 19.8%, are classified as ‘Extremely At Risk’, indicating a precarious financial situation.

The study underscores that unemployment is a key factor influencing income and mortgage stress. Despite recent improvements in household incomes due to a robust job market, rising interest rates since May 2022 have substantially increased the number of Australians vulnerable to mortgage stress.

The escalating levels of mortgage stress among Australians could potentially have a significant impact on small and medium-sized enterprises (SMEs) across various sectors:

Consumer Spending Reduction: As homeowners face higher mortgage repayments, they may cut back on discretionary spending, impacting SMEs in retail, hospitality, and leisure sectors.

Decreased Business Investment: SMEs may hesitate to invest in expansion or innovation initiatives due to uncertainty surrounding consumer demand, affecting sectors such as technology, manufacturing, and professional services.

Supply Chain Disruptions: Mortgage stress could lead to financial difficulties for some households, resulting in late payments or defaults on bills, causing disruptions in supply chains and affecting businesses reliant on timely deliveries.

Increased Financial Strain: SMEs relying on consumer credit or loans may face challenges accessing financing if financial institutions tighten lending criteria, hindering business growth and investment opportunities.

Employment Impact: As consumer spending declines and businesses face financial constraints, SMEs may implement cost-cutting measures such as reducing staff hours or laying off employees, contributing to higher unemployment rates.

Michele Levine, CEO of Roy Morgan, highlights that mortgage stress increased in both December and January, reaching a new record high above 1.6 million mortgage holders considered ‘At Risk’. Despite easing inflation pressures, further interest rate increases could lead to new record highs in mortgage stress levels.

“The latest figures for January 2024 represent an increase of 8,020,000 mortgage holders considered ‘At Risk’ since the RBA began raising interest rates in May 2022. The figures take into account 13 interest rate increases which raised interest rates by a total of 4.25% points to 4.35%. The extended pause in official interest rate increases for four months from July – October 2023 reduced the pressure on mortgage holders and allowed growth in several areas of the economy to ‘catch up’ and reduce mortgage stress from the mid-year highs above 1.56 million. However, the interest rate increase in November has added renewed pressure on mortgage holders.

“The latest ABS monthly inflation figures for December 2023 showed a sharp decline in the indicator to 3.4% – down 0.9% points from a month earlier and down a large 5% points from a year earlier. This is the lowest annual inflation in Australia for over two years since November 2021 (3.2%).

“Although inflation pressures are clearly easing, the level of inflation remains above the Reserve Bank’s preferred target range of 2-3% and in inflation indicators such as petrol prices remain high. For the first time in history average retail petrol prices have been above $1.80 per litre for a record 32 straight weeks – equivalent to eight months. For these reasons we have modelled a further interest rate increase of +0.25% in March 2024. If the RBA does raise interest rates by 0.25% in March, Roy Morgan forecasts mortgage stress would increase to 1.64 million mortgage holders (31.6%) considered ‘At Risk’ by April. This would represent a new record high number of mortgage holders considered ‘At Risk’ for mortgage stress.

“The latest figures for January 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. The variable that has the largest impact on whether a borrower falls into the ‘At Risk’ category is related to household income – which is directly related to employment. The employment market in Australia has been exceptionally strong over the last year and this has underpinned rising household incomes which have played a part in reducing overall mortgage stress in January. However, rising interest rates since May 2022 have caused a large increase in the number of mortgage holders ‘At Risk’. If there is a reacceleration in inflation over the months ahead, that results in further interest rate increases in 2024, levels of mortgage stress are set to increase further to new record highs.”

To learn more about Roy Morgan’s mortgage data, call (+61) (3) 9224 5309 or email [email protected].

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