This article is from the Australian Property Journal archive
AHEAD of the Reserve Bank’s meeting today, new data shows 27.1% of mortgage holders now classed as “At Risk”, mortgage stress has reached its highest rate since September 2008.
According to the latest research from Roy Morgan, 1.35 million mortgage holders were at risk in the three months to March 2023, corresponding with the RBA raising the cash rate to 3.6%, the highest rate since June 2012.
With the RBA hiking rates for ten consecutive months—only pausing in April—mortgage stress has increased by 590,000 in the year to March.
While September 2008 saw over 1.37 million at risk mortgage holders, the March 2023 proportion is the highest for more than a decade since November 2011’s 27.7%.
The slowing in the monthly inflation indicator was a key factor that prompted the RBA to pause its cycle of increases by leaving interest rates unchanged in April. The further reductions seen in the latest ABS Quarterly and Monthly Inflation figures for March 2023 takes some of the pressure off the RBA to resume its cycle of interest rate hikes next week,” said Michele Levine, CEO at Roy Morgan.
“However, of concern is that the monthly ANZ-Roy Morgan Inflation Expectations indicator, which has proved a reliable predictor of future inflationary trends in the economy, increased 0.3% points in March to 5.6%. This result suggests that there are still inflationary pressures in the economy even if the early figures from this year do show a reduction compared to late 2022.
Mortgage stress still sits below the high seen in the Global Financial crisis, which reached 35.6% or 1,455,000 in early 2009.
Additionally, the volume of mortgage holders now considered “Extremely At Risk” has reached 835,000 or 17.3% over the same three months to March period, sitting well above the long-term 15-year average of 660,000 or 15.9%.
“When considering the data on mortgage stress it is always important to appreciate interest rates are only one of the variables that determines whether a mortgage holder is considered ‘At Risk’. The variable that has the largest impact on whether a borrower falls into the ‘At Risk’ category is related to household income – which is directly related to employment,” added Levine.
“The latest figures show 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. If there is a sharp rise in unemployment mortgage stress is set to rise towards the record high of 35.6% of mortgage holders considered ‘At Risk’ in May 2008 during the Global Financial Crisis.”
Modelling the impact of two future interest rate rises of 0.25% in May and June, which would bring the rate up to 4.1%, almost one third of mortgage holders could be at rick by June.
With the first potential hike in May bringing the number of at risk mortgage holders to 30.5% or 1,523,000 and 31.1% or 1,557,000 in June.
Recent research from Mozo, revealed 75% of mortgage holders could become “home loan hostages”, leaving them unable to refinance their home loan to a new lender.
While Moody’s found over December 2022 the 30+ days delinquency rate for residential mortgage-backed securities (RMBS) backed by prime home loans was at 1.07%, up from 0.96% in September and are only set to grow.
“The good news is that the latest Roy Morgan employment estimates show a record 9 million Australians were employed full-time in March 2023, up over 300,000 from March 2022 indicating the strength of the labour market over the last year despite the RBA’s series of interest rate increases,” concluded Levine.
