Mortgage stress risk to rise if RBA hikes: Roy Morgan

The latest Roy Morgan research has warned that should the Reserve Bank of Australia (RBA) increase the official cash rate by 0.25 per cent to 4.35 per cent, the number of mortgage holders considered to be “at risk” of mortgage stress will increase to 30.4 per cent, up by 8,000 to 1,581,000.

The risk of mortgage stress among mortgage holders is considered in two categories by Roy Morgan; mortgagors “at risk” if repayments are more than a certain percentage of their income on a case-by-case basis and “extremely at risk” if even the interest-only is above a certain proportion of income.

Furthermore, if another interest rate hike follows a November hike (bringing the cash rate to 4.6 per cent), the “at risk” category will increase by 0.7 per cent to 31 per cent or 1,612,000 mortgage holders by December 2023, an increase of 39,000.

In the three months to September 2023, Roy Morgan’s research found that 30.3 per cent of mortgage holders were “at risk” (1,573,000), with 766,000 more households at risk of mortgage stress following a year of interest rate rises.

Mortgage holders that fall into the “extremely at risk” category now number 1,043,000 (20.5 per cent), above the long-term average over the last 15 years of 15.3 per cent.

Roy Morgan chief executive Michele Levine said the current data sits at a “record high” as the RBA’s interest rate increases continue to flow through the mortgage market.

“The figures for September 2023 take into account all 12 RBA interest rate increases which lifted official interest rates from 0.1 per cent in May last year to 4.1 per cent by June 2023,” Ms Levine said.

“The RBA’s decision to leave interest rates unchanged in recent months came as inflation decreased compared to earlier this year.

“However, in recent months inflation has ‘reaccelerated’ and moved upwards. The latest ABS CPI monthly figures for the year to September 2023 show Australian inflation at 5.6 per cent, up 0.4 per cent points from August and up 0.7 per cent points over the last two months.”

She further noted the increase in inflation during the September quarter was the “first time official inflation has increased for two straight months so far this year – the last time was at the cyclical peak in December 2022 at 8.4 per cent”.

“The increases to inflation are not surprising though considering the increase in energy and fuel prices in recent months,” Ms Levine added.

September CPI woes

The September quarter CPI rose 1.2 per cent and up 5.4 per cent annually, while annual inflation continued to fall from the 7.8 per cent peak in the December 2022 quarter, forcing the hand of many economists to shift their rate forecasts.

All four of Australia’s big banks are now predicting a rate hike of 0.25 per cent during the November monetary policy meeting to bring the official cash rate to 4.35 per cent.

Westpac Group chief economist Luci Ellis said while inflation is declining, it’s not fast enough for the RBA to continue to hold rate steady due to its “recent rhetoric”.

However, RBA governor Michele Bullock recently expressed that the board is still assessing the latest CPI data to decide whether or not any “material change” has been found and if the data will affect inflation forecasts and monetary policy.

[RELATED: RBA undecided on increasing rates: Bullock]