Mortgage stress down despite Cup Day hike: Roy Morgan

The latest research from Roy Morgan has revealed that 29.9 per cent (1,490,000) of mortgage holders were considered “at risk” of mortgage stress in the three months to November 2023. This figure has shown a second monthly decrease in mortgage stress despite the Melbourne Cup Day rate hike bringing the official cash rate to 4.35 per cent.

According to Roy Morgan, the easing was a result of a combination of several factors such as increased household incomes, increased employment, and lowered amounts borrowed and outstanding.

The November figures also marked the first time since January 2022 – prior to the Reserve Bank of Australia (RBA) raising interest rates – that mortgage stress fell for two consecutive months.

Despite the decrease, Roy Morgan noted that this was only the sixth time that over 1.45 million mortgage holders were considered “at risk” in the history of the index.

Since the beginning of the RBA’s interest rate hikes in May 2022, 683,000 mortgage holders have been placed in the “at risk” of mortgage stress category and while the number has decreased in November, it still remains close to the record high reached in September 2023 of 1,573,000, but well below the 35.6 per cent reached during the global financial crisis.

Furthermore, the number of mortgagors “extremely at risk” now represents 19.3 per cent of mortgage holders (934,000), sitting above the long-term decade average of 14.2 per cent.

Roy Morgan estimates that 30.8 per cent of mortgage holders will fall into the “at risk” category should the RBA move to increase the official cash rate by 25 bps to 4.6 per cent.

Michele Levine, chief executive of Roy Morgan, said the extended pause in interest rates from July to October 2023 has reduced the pressure on mortgagors and “allowed growth in several areas of the economy to ‘catch up’ and reduce mortgage stress”.

“A deeper analysis of the underlying factors affecting mortgage holders shows a combination of factors leading to the easing of mortgage stress in the last few months,” Ms Levine said.

“In recent months household incomes and employment have both increased strongly while there’s been a reduction in the amounts borrowed and outstanding.”

Although the latest monthly inflation figures for November released by the Australian Bureau of Statistics (ABS) revealed a decline in the indicator to 4.3 per cent, Ms Levine warned that a “higher-than-expected” December reading would “reignite fears that inflation is set to persist during 2024”.

“If there is a reacceleration in inflation over the months ahead that results in further interest rate increases in 2024 levels of mortgage stress will start trending upwards again despite easing in recent months,” Ms Levine added.

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