This article is from the Australian Property Journal archive
THE number of Aussies at risk of mortgage stress decreased in the three months to October as the Reserve Bank held interest rates steady, household incomes increased and employment lifted – but a rate rise of 0.25% in December following this month’s hike would mean 1.589 million Aussies are at risk.
The latest data from Roy Morgan shows 1.514 million mortgage holders – 30.1% of all mortgage holders – were “at risk” of “mortgage stress” at the end of October, a slight decrease on a month earlier but still just the third time in the history of Roy Morgan’s index that over 1.5 million mortgage holders were considered “at risk”.
The number of mortgage holders considered “extremely at risk” is now numbered at 967,000, 19.7% of mortgage holders, significantly above the 10-year average of 14.1%.
Michele Levine, CEO of Roy Morgan, said close analysis shows that a combination of factors led to the easing of mortgage stress in the latest figures.
“Over the last several months household incomes and employment have both increased strongly while there’s been a reduction in the amounts borrowed and outstanding,” she said.
“While banks are less likely to lend to those who might be ‘stretched’, people seem to be doing everything to reduce their mortgage such as downsizing and selling other assets.
“When home loan interest rates were low, people used their home loans to fund what we might call the ‘business of life’ – small businesses, trips, home improvements, school fees, second and holiday homes etc. etc. During this period home loans were a cheap form of financing. The increase in interest rates has encouraged people to think again about this kind of funding – and they’re making different choices.”
Roy Morgan predicts that a rise of 0.25% in December would take the total number of mortgage holders “at risk” to 1.553 million in December, which would climb further in January to 1.589 million.
The firm is modelling in another interest rate increase next month after a renewed rise in the official inflation numbers, with the latest official CPI monthly figures for the year to September showing inflation at 5.6%, up 0.4% from August and up 0.7% over the last two months.
This is 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 last year at 8.4%.
Energy and fuel prices have been major contributors. The average retail petrol price has averaged above $1.90 per litre for a record 15 straight weeks since early August.
Levine said 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.
“The employment market in Australia has been exceptionally strong over the last year and this has underpinned rising household incomes which played a part in reducing overall mortgage stress in October.
“However, rising interest rates over the last year have caused a large increase in the number of mortgage holders considered ‘at risk’ and further increases in the months ahead will spike these numbers even further even as people adjust their lifestyle choices to deal with increased payments.”
