Mortgage stress risk continues to rise: Roy Morgan

The latest research released by Roy Morgan has revealed yet another “record high” of 1.57 million (30.9 per cent) of mortgage holders were “at risk” of “mortgage stress” in the three months to August 2023.

Roy Morgan defines the risk of mortgage stress in two ways: borrowers are considered "at risk" if their repayments are larger than a certain percentage of household income (depending on spending and income) and borrowers are considered "extremely at risk" if even the "interest only" is over a certain proportion of household income.

These figures broke the previous record set only a month prior in July of 29.2 per cent or 1,496,000 mortgage holders at risk of stress.

According to Roy Morgan, the number of mortgage holders at risk of stress increased by 759,000 since the beginning of the Reserve Bank of Australia’s (RBA) rate hiking cycle in May 2022, although the proportion of at-risk mortgage holders still remains below the high of 35.6 per cent recorded during the global financial crisis (GFC).

Mortgage holders considered “extremely at risk” increased to 21 per cent (1,066,000), high above the long-term average over the last 15 years of 15.3 per cent.

Roy Morgan chief executive Michele Levine said: “The RBA’s decision to leave interest rates unchanged in recent months comes as inflation has reduced compared to earlier this year and there are increasing indications that higher interest rates are eating into household deposits.

“Australian Bureau of Statistics’ (ABS) data released last week showed overall household deposits shrank by $6 billion in the June quarter 2023 – the first quarterly decline since June quarter 2007.”

The RBA decided to hold the official cash rate at 4.1 per cent during its October monetary policy meeting (3 October), although new RBA governor Michele Bullock flagged “significant uncertainties” in the economic outlook.

Prior to the board’s decision, Ms Levine warned that another cash rate increase of 25 bps (bringing the cash rate up to 4.35 per cent) would have resulted in 1.65 million (31 per cent) mortgage holders entering the “at risk” category.

Although the RBA did not raise the cash rate, along with suggestions that the RBA has completed its cycle of interest rate rises, Ms Levine stated that inflationary pressures such as the low Australian dollar and high petrol and energy prices “may force their [RBA’s] hand for further interest rate increases in the months ahead”.

Indeed, the latest data from the ABS monthly Consumer Price Index (CPI) indicator revealed an increase of 5.2 per cent in the 12 months to August, up from the 4.9 per cent recorded in July 2023.

“The latest figures on mortgage stress show that rising interest rates are causing a large increase in the number of mortgage holders considered ‘At Risk’ and further increases will spike these numbers even further,” Ms Levine further stated.

“If there is a sharp rise in unemployment, mortgage stress is set to increase even more.”

[RELATED: RBA flags ‘significant uncertainties’ in economic outlook]