How can mortgage stress be rising?

According to Digital Finance Analytics (DFA), mortgage stress levels continue to rise, with 1.52 million households across the country in mortgage stress at the beginning of May, a 1.1% increase from the prior month. This is up significantly from February 2020, just prior to the COVID pandemic, when 32.9% of households were deemed by DFA to be experiencing mortgage stress.

As reported in The AFR:

Mortgage stress occurs when households earn less than they spend, including on mortgage repayments…

“Stress indicators are an early warning sign of potential issues ahead,” Mr North said…

“The cash flow crunch will be a slow burn generally, meaning financial pressure will continue in the months ahead. At the moment, the level of financial stress remains significantly higher than pre-pandemic.”

I do not understand how mortgage stress could have risen.

Mortgage rates have tanked since the pandemic began, as illustrated clearly in the next chart:

Average mortgage rates in Australia

Average mortgage rates have collapsed across the spectrum.

Household disposable income has also risen on the back of massive stimulus:

Real Australian household disposable income

Real Australian household disposable income rose sharply on the back of stimulus.

Reflecting the above, the average share of household income being absorbed by debt repayments (both principal and interest) has fallen to its lowest level since 2003, according to the Bank for International Settlements:

Debt repayments to disposable income

The ratio of debt repayments to income has fallen to an 18-year low.

Households in aggregate have also built up a massive war chest of savings, which augers against the “stressed” theme:

Australian households accumulated a record $187 billion in savings in 2020.

Overall, the aggregate data points to a situation of declining mortgage stress since the onset of the COVID pandemic.

Unconventional Economist
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  1. Subprime MinisterMEMBER

    Yeah mainly the wealthy households that built up savings. My uncle had $300,000 cash in the bank spare and got $90,000 cashflow booster handout. Already owns around 10 properties on top of that. On the other side a lot of small businesses are still recording lower turnover than ever (I can see the figures directly in my line of work). It seems fairly uneven.

      • Surely the desire for such an outcome depends if the houses are owned or financed. Inherit the houses and not the debt, woohoo. Perhaps that can be in next years budget that anyone inheriting a house gets the remaining debt covered by the taxpayer assuming they leverage into a second or third IP.

        • happy valleyMEMBER

          Tim Wilson probably already has such a brilliant idea in mind and when Josh Rainbowberg inevitably gets his irresponsible lending regime, debt repayment will be automatically waived and bank depositors will primarily wear the loss because everyone knows that the gubmint guarantee is worthless and that there is defacto depositor bail-in.

    • You must be a tax accountant or advisor…I heard the same from my University mate, said many small business owners were completely dependent on jobkeeper, and wouldn’t be around > year once that’s gone

      • Subprime MinisterMEMBER

        Yeah that’s right. And also bear in mind the economy wasn’t going well prior to COVID. Just about every month a retailer (most of the time national) was going bust. So most of these businesses & their owners have simply increased their debt to unsustainable levels to survive and now its biting.

        • Jumping jack flash

          “Yeah that’s right. And also bear in mind the economy wasn’t going well prior to COVID. Just about every month a retailer (most of the time national) was going bust.”


          And Scomo missed his one opportunity to turn that around. All we can hope for is for some of the 6 trillion US stimulus to make its way around the world to us, probably through increased demand for Chinese goods, and then demand for our resources to make them.

          I believe we will resume the deflation by the end of the year as soon as the stimulus has run its course. Nothing was done to expand the debt capacity of the economy through rising inflation (CPI) and then wages.

          Businesses were praised for returning stimulus when its entire purpose was to be distributed to the people and spent, enabling businesses to raise prices, and then wages in turn. Foreign slaves, the greatest CPI suppressant there is, are just about to be ramped back up.

          I don’t think it could have been managed much worse, but hey, we got a couple of months of rising house prices for their trouble.

          • Yes, agree white you both, this is what I’m getting from SME, not so great, and several have downsized their office/factory space to cut costs. DFA survey showing there have been many winners from Joshies misdirected spending, but plenty of losers too (or maybe it’s random across income levels, just depends on your industry, ie tourism related suffering, others booming?


      Yeh I hypothesise there’s a bit of “two speed” stuff going on. Poor people often can’t refinance/get lower rates?

      Plus I imagine first home buyers are almost all automatically putting themselves close to mortgage stress because of the price increases/subsequent loan size.

  2. happy valleyMEMBER

    “Overall, the aggregate data points to a situation of declining mortgage stress since the onset of the COVID pandemic.”

    But depositor and saver interest rate poverty to the moon, compliments of the RBA happy clappies.

  3. Cynical snake


    And the slippery nature of statistics.
    Overall the average looks really good. FHB’s that need incentives are much more likely to be in mortgage stress than existing mortgage holders, therefore an influx of FHB’s == a spike in % of people in mortgage stress.

    • Goldstandard1MEMBER

      and it doesn’t worry you the people who are new in the market are the most stressed? That spreads and those guys will never own their home or pay off the debt before the market reverses heavy.

      • Cynical snake

        As long as inflation is a positive number, the people new to the market will ALWAYS be the most stressed, as they have paid the most for an asset, with the value falling in real terms for everyone over time.

  4. Goldstandard1MEMBER

    Suggest you have a broader look around at how many are doing it tough. You know, average ppl not ppl you lunch with.

    You seen more or less “for lease signs” on shops? You seen more or less homeless ppl? You seen grocery bills go up or down? You seen ppl less or more worried about the future in terms of job prospects and income rises?
    Seriously, have a look and maybe a think, and all this with UNPRECEDENTED money printing and record low IRs. That is a scary prospect when the virus is not gone, mutating AND war seems to imminent as masses become twitchy.

    Have a look around outside your square.

    • fitzroyMEMBER

      +1 There is a massive amount of spin from the asset holders. Business owners in Melbourne not so much.

    • Someone ElseMEMBER

      Beggars, everywhere. But no more ‘Big Issue’ sellers. I have never seen so many beggars.

  5. Just have to dig down a bit.
    For the first chart – lower interest rates are offset by larger mortgages.
    Second chart – Disposable income does not include mortgage repayments. Its also “real” meaning adjusted by inflation which has been illusive AND is per capita which its growth is constantly falling and has taken a hit with migration drops this year
    Third Chart – Is only debt servicing ratios – not principle
    Fourth Chart – Needs more granular data. For example an investor offloading a property at a profit to FHB. You don’t go from 40k savings to 180k in saving in 6 months without a big transaction like that.

    I should point out that total credit to households as reached a record high of $2408b
    Total credit to households (core debt) As a percentage of GDP is still at lofty highs of 122.6

    • working class hamMEMBER

      Pretty good insight.
      We bought off a boomer cashing out their investment for retirement in Dec 20’. Many of the houses we inspected were the same story, boomers liquidating before the “crash”.

    • Jumping jack flash

      $2.4 trillion dollars must harvest a bit of interest from the economy every year. This debt does nothing to generate the money used to pay its interest, except through its own growth.

      Not everyone is on 2% either. Average interest rate is still around 5% I believe.

      • Jumping jack flash

        moar debt is required, and a faster rate of growth.
        This can’t be achieved just with interest rates, as the last 10 years have surely shown us. It also needs CPI.


    “Experts generally recommend homeowners dedicate no more than 30% of their income towards their mortgage, but Finder’s First Home Buyers Report found a worrying 53% of first home buyers are spending more than 30% of their income on their home loan repayments.

    Analysis of CoreLogic data reinforces that mortgage affordability is a very real issue, particularly in the larger cities and particularly with houses. The median homeowner in Sydney pays $3,156 on their mortgage each month, amounting to 42% of the average income in New South Wales. For those set on purchasing a house in Sydney, monthly mortgage payments increase to $3,660, or 48% of average earnings. Following Sydney’s expensive market is Melbourne, where the average mortgage makes up 34% of earnings. On the other hand, buyers in Darwin spend just 20% of their income on home loan repayments.”

    “Finder’s First Home Buyers Report found 53% of first home buyers are buying sooner than they had previously planned to due to the low-interest rate environment. ” (plus all the housing “stimmy” money, presumably, which don’t make mortgages much cheaper because they make up the deposit portion and because they drive prices/loan sizes up)

    • I’m so happy my mortgage repayment is <$60 per week. I just got work at $28 p/h so even with my reduced ability to work I'm pretty relaxed about finally having a mortgage.

  7. Doesn’t ANYONE ever question Martin’s core market “model”, on which everything is based?