Mortgage stress hits records highs

Via Martin North:

We have released the June 2019 mortgage stress results, based on our running 52,000 household surveys. We found that 32% of households are now dealing with mortgage stress, a record, meaning they are having cash flow issues managing their finances and mortgage repayments.

This translates into more than 1,063,000 households spread across the country, and nearly 71,000 risk default in the year ahead, even taking into account the fall in mortgage repayments represented by the recent rate cuts. Banks loses will rise.

This is because the costs of living continue to run ahead of incomes, while households have larger debts (and are being enticed to buy in the current complex risk environment).

The top post codes in stress are those in the outer suburban fringe areas, where many large estates are still being built, and households are super-highly leveraged.

The RBA released their March 2019 data on household ratios. Whilst these series include small business finance, and include households not borrowing, the trends continue to tell the story of debt, and more debt.

The household debt to income ratio is at a record 189.7, while the housing debt to income ratio was 140.1, again a record and the owner occupied housing debt to income ratio was also up, to 109.3. These are high numbers, on a trend and international comparable basis. Households are drowning in debt.

However the asset to income ratios tell another story. As home prices have fallen, so the ratio has decreased, assets are down relative to income. The exception are financial assets, which benefited from the rise in stock prices this year.

The ratio of interest to income continues to rise because households are borrowing at a faster rate than their incomes are growing, helped of course by lower interest rates. This ratio is below that before the GFC because rates have dropped. And this is the one ratio spruikers turn to to defend the high debt levels – but it is myopic, and going in the wrong direction.

Finally, the RBA data debt to assets shows the pincer movement as home prices fall, and debt rises. This is now heading towards the highest we have seen.

The obvious conclusion is that the debt burden is too great, mortgage stress will go on rising, until the balance between debt and income is restored.

The recent loosening of lending standards simply pours more fuel on the fire. Households are being used a canon fodder in the vein attempt to keep the faltering economy afloat.

It’s not clear if survey was taken before the first rate cut.

David Llewellyn-Smith


  1. Jumping jack flash

    Whew! Lucky we got that 0.25 cut and the next few which will double house prices, create tens of thousands of new jobs and increase wages above cost of living.

    “The ratio of interest to income continues to rise because households are borrowing at a faster rate than their incomes are growing”

    What? They’re actually considering interest now? The banks will be displeased, they don’t want to make people aware of the effects of the interest in an economy that’s based on infinite debt. Protip: interest also goes to infinity.

    And surely all that debt created by the banks is productive debt after being attached to houses, which will boost income at least to be able to cover the interest.

    A few trillion nonproductive debt dollars doesn’t need a lot of interest to be handed over to the banks now, does it?

    • proofreadersMEMBER

      Especially when our unquestionably strong banks will soon be charging depositors interest to hold funds with them, meaning borrowers will be paying next to no interest on their to-die-for mortgages. How good is Straya.

  2. Martin_DFAMEMBER

    To end of June, so the changes in mortgage rates did not show yet, they should next month….

      • Martin_DFAMEMBER

        Height of poor lending standards and competitive leading led to larger mortgages, while costs of living took off and incomes did not.

      • BabundaMEMBER

        It doesn’t add-up.

        Interest-to-income ratios have been rising but only steadily and gradually since 2015. The labour market has not crashed,

        Beyond that I would suspect a change in methodology – ie. changing the questions asked or what counts as ‘stress’

    • Wonder if this is why RBA cut? Do they look at similar data? Or collect similar survey data to you Martin?

    • So we could see another jump like that Nov 16 to nov 17 in the coming months if unemployment lifts and smashes that ratio from the other direction

    • Hey Martin, here’s another little droplet to subtract from the house revenue: I’m in QLD and my Rego just came in: nearly $1200 per year. Yes, it’s a V8 and I can afford it, but the other car classes went up just as badly…. Ouch!

      • In Sydney we got a Greenslip rebate because of the tolls and how much rego + tolls was costing people, particularly in the sH1t parts of Sydney :D. Anyway I reckon the average punter spends $1000 p/year on tolls if they live out that way. So $2k just on running costs.

        The recent tax cut may put $1000 back in your pocket, and interest rate drops may help $1000 p/year, but is $2,000 the make or break factor for most families? I suspect most live way beyond their $60,000 p/year pay packets. I reckon interest on credit cards is another huge factor, but why banks are not forced to lower rates on those I don’t know? The Mrs was being charged 14% on her Commonwealth card and I was like this is mad? It was at $8,000 odd, each month I’ve been paying her $1,000 towards paying it off, only just under $2,000 to go now. Once that’s paid off I’m cutting it up.

  3. reusachtigeMEMBER

    With so many cost-effective stress relief services around nowadays it perplexes me that any investor would get to the stage of actually being stressed.

  4. I don’t think anyone who is struggling would be much better after 0.25% or 0.5% cut
    0.5% is $50 per week (cheap family takeaway) on a $500k loan and $100 per week on a million dollar loan – if $$100 is significant to a person having a million dollar loan they are going to struggle regardless of the cut

    • Jumping jack flash

      Only if the banks pass it all on, which they don’t need to.

      But yes you’re completely right. The cuts are a bit of a joke and i wonder why they’re really making them. Its got nothing to do with jobs and wage inflation and confidence.

      There is simply no hard link between interest rates and anything like that. None at all.

  5. Narapoia451MEMBER

    No fear, the bubble is about to take off again – that will help these people to pay off their currently completely non fraudulent and affordable mortgages.