Research from Roy Morgan has shown that an estimated 677,000 mortgage-holders (17.3 per cent) were at risk of mortgage stress in the three months to May 2021 – meaning their mortgage repayments were greater than 25-45 per cent of household income – depending on income and spending.
Over half of those borrowers (11.8 per cent, roughly 440,000 people) were considered “extremely at risk”, where even their “interest-only” is over a certain proportion of household income.
The proportion has declined year-on-year, from 794,000 mortgage-holders (19.4 per cent) being at risk during the early stages of the COVID-19 pandemic, during the three months to May 2020.
Roy Morgan stated the May period this year encompassed the end of the JobKeeper wage subsidy, low community transmission of COVID-19 and only a few short and sharp lockdowns and border closures.
Improved employments conditions in the first half of 2021 and the support measures taken by banks such as financial distress mortgage holidays, alongside record-low interest rates were also cited for the decrease in mortgage stress – despite the level of financial support tapering off.
Michele Levin, chief executive of Roy Morgan commented that contrary to fears around the beginning of the pandemic, government and banks’ support has led to a sustained period of low mortgage stress.
“The latest outbreaks of COVID-19 in Sydney and Melbourne are causing renewed concern as hundreds of thousands of workers in both cities are forced to stop working as part of the lockdowns across industries such as retail, hospitality, recreation and, in Sydney, the construction industry,” she said.
“The good news is that one of the lessons of the pandemic, to provide financial support to those forced into financial distress by lockdowns, has been learnt – with both federal and state governments increasing the level of new financial support available in both states in the last week.”
Roy Morgan has also tracked employment amid the pandemic, recording a change in circumstances for 72 per cent of Australians (11.2 million) in May 2020. In June this year, employment circumstances had changed as a result of the virus for an estimated 9.6 million people.
Many of the employment changes were negative and included having working hours reduced, a slowdown in offers to work, being stood down, a slowing or complete halt in business, being made redundant and having reduced pay.
For those with negative employment changes due to COVID, mortgage stress was higher. Close to a fifth (19.9 per cent) of those who had impacted employment had mortgage stress in the three months to May, 2 per cent more than the overall average.
Of the group at risk, 14.7 per cent were “extremely at risk”.
The number of mortgage-holders considered extremely at risk had dropped from an initial spike as the pandemic began, until it plunged to a low of 11 per cent overall in the three months to October.
However, as government support was progressively withdrawn and mortgage holidays began to end, it rebounded and hit a peak of 13.7 per cent in January, (covering 526,000) in the three months to January.
“Many years of research into mortgage stress has shown that the biggest driver of increased mortgage stress is the reduction in income caused by the loss of a job which causes an immediate jump into a risk category,” Ms Levine said.
“Over two in three mortgages rely on more than one income, and our analysis shows losing even the lower of these two incomes causes an immediate fourfold increase in the likelihood of those mortgage holders becoming ‘at risk’ or ‘extremely at risk’.”
Sarah Simpkins is the news editor across Mortgage Business and The Adviser.
Previously, she reported on banking, financial services and wealth for InvestorDaily and ifa.