Last week, Canstar released analysis showing that the average Australian mortgage borrower was in stress, with mortgage repayments chewing-up 34% of average household disposable income. As expected, borrowers in NSW and VIC were most in stress with average repayments taking up 40% and 38% of disposable income respectively.
Today, Digital Finance Analytics (DFA) released its September 2018 mortgage stress and default analysis, which shows that one million Australian households are now in stress:
The latest RBA data on household debt to income to June reached a new high of 190.5[1]. This high debt level helps to explain the fact that mortgage stress continues to rise.
Across Australia, more than 1,003,000 households are estimated to be now in mortgage stress (last month 996,000). This equates to 30.6% of owner occupied borrowing households. In addition, more than 22,000 of these are in severe stress. We estimate that more than 61,000 households risk 30-day default in the next 12 months. We continue to see the impact of flat wages growth, rising living costs and higher real mortgage rates. Bank losses are likely to rise a little ahead.
Martin North, Principal of Digital Finance Analytics says this rise in stress is to be expected, and should be of no surprise at all. Indeed, the fact that significant numbers of households have had their potential borrowing power crimped by lending standards belatedly being tightened, and are therefore mortgage prisoners, is significant. More than 40% of those seeking to refinance are now having difficulty. This is strongly aligned to those who are registering as stressed. These are households urgently trying to reduce their monthly outgoings”.
“Continued rises in living costs – notably child care, school fees and fuel – whilst real incomes continue to fall and underemployment is causing significant pain. Many are dipping into savings to support their finances”…
Regional analysis shows that NSW has 276,132 households in stress (270,612 last month), VIC 276,926 (270,551 last month), QLD 176,528 (175,102 last month) and WA has 132,700 (134,333 last month). The probability of default over the next 12 months rose, with around 11,589 in WA, around 11,300 in QLD, 15,300 in VIC and 16,252 in NSW.
Given the gale force headwinds building for the property market via: out-of-cycle mortgage rate increases from rising funding costs; credit rationing arising from the banking royal commission (including the death of the HEM); the massive interest-only mortgage reset; and Labor’s negative gearing and CGT reforms, mortgage stress and defaults are destined to rise.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
