Home loan stress rises following consecutive declines: Roy Morgan

New data released by Roy Morgan has revealed that 1,527,000 mortgage holders entered the “at risk” of mortgage stress category in the three months to December 2023, equating to 30.3 per cent of mortgagors.

According to Roy Morgan, the figure for December represented the highest level of mortgage stress for three months as interest rate rises continued to take effect. However, this still sat below the record high levels of 1.56 million “at risk” mortgage holders recorded in August and September 2023.

This period included one interest rate hike by the Reserve Bank of Australia (RBA) during the November monetary policy meeting, which took the official cash rate from 4.1 per cent to 4.35 per cent, leaving them at the highest level since December 2011.

Since the beginning of the RBA’s cycle of interest rate increases in May 2022, 720,000 more households entered the “at risk” of mortgage stress category, Roy Morgan has found.

Mortgage holders in the “extremely at risk” category reached 964,000 in the three months to December 2023 (19.8 per cent of mortgage holders), sitting well above the long-term average over the last decade of 14.2 per cent.

The increase in December came as levels of mortgage stress fell in late 2023 (October and November), which marked the first time mortgage stress dropped for two consecutive months since the start of the RBA’s hiking cycle.

Although another hold in the cash rate is expected for the upcoming February monetary policy meeting, Roy Morgan has modelled the impact of what another potential rate increase will have on mortgage holders.

Should rates increase by 0.25 bps in February (bringing the cash rate to 4.6 per cent), the number of “at risk” mortgage holders is projected to increase to 30.8 per cent, while a subsequent rate hike in March of 0.25 per cent could bring stress levels to 31.8 per cent, which would represent a new high for mortgage stress.

Roy Morgan chief executive Michele Levine said underlying factors such as increased household income and employment have led to an easing of mortgage stress since mid-2023.

“Household incomes and employment have increased while there’s been a reduction in the amounts borrowed and outstanding although the most recent increase in interest rates has provided renewed upward pressure on mortgage stress,” Ms Levine said.

“While banks are less likely to lend to those who might be ‘stretched’, people with mortgages tend to do everything within their power to reduce their mortgage size including by downsizing and selling other assets to maintain their mortgage payments and avoid defaulting.”

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