Roy Morgan Research has modelled the direct impact of the existing 3.1% jump in the Official Cash Rate (OCR), as well as two further 0.25% rate increases in February and March.
This modelling estimates that nearly one quarter (23.9%) of Aussie mortgage holders (1.1 million households) are already classified as ‘At Risk’, defined as their mortgage repayments being greater than a certain percentage of household income (i.e. 25% to 45% depending on income and spending).
This is the highest share of mortgage stressed households since July 2013.
Moreover, mortgage stress would lift to 1.2 million households (26.3% of mortgage holders) if the Reserve Bank lifts the OCR in February and March by 0.25% respectively:
Roy Morgan warns that “this is a conservative model, essentially assuming all other factors remain the same. And of course we are already seeing an increase in unemployment”.
“The greatest impact on an individual, or household’s, ability to pay their mortgage is not interest rates, it’s if they lose their job or main source of income”, Roy Morgan said.
As illustrated in the next table, average variable mortgage repayments have already lifted by 41% versus their level in April 2022 immediately before the Reserve Bank’s first rate hike:
If the Reserve Bank was to hike rates another 0.5% over the next two months, then it would lift average variable mortgage repayments by 48% against their April 2022 level:
For a borrower with a $500,000 variable mortgage, this represents a $1,071 increase in monthly mortgage repayments since April 2022.
Moreover, around 40% of mortgages originated over the pandemic were fixed at rock bottom rates of around 2.25%. About two-thirds of these will have expired by the end of this year and will have reset to roughly double or triple mortgage rates.
In turn, many more Australian mortgage holders will be pushed into stress in 2023.
