Roy Morgan’s July mortgage stress survey has been released, with mortgage stress reaching its highest level since May 2008, with 1.5 million or 29.2% of mortgage holders classified as “at risk”:
A borrower is classified as “At Risk” by Roy Morgan if their mortgage payments exceed a predetermined level (between 25% and 45%, depending on income and consumption).
The numbers for July 2023 show 12 RBA interest rate hikes, which have raised the official cash rate from 0.1% in May 2022 to 4.10% currently.
According to Roy Morgan, in the unlikely even that the RBA lifts interest rates next month (to 4.35%), 30.2% of mortgage holders will be “at risk”:
And if the RBA raises interest rates another two times (to 4.60%), 30.7% of mortgage holders will be “at risk”.
Roy Morgan says that it uses a conservative model that essentially assumes all other factors remain constant.
Therefore, if unemployment rises significantly, then mortgage stress will worsen further.
Last week, CBA released data showing that average mortgage interest charges continue to rise despite the RBA keeping rates on hold since June:
This reflects the expiry of fixed rate mortgages, with $34 billion worth expiring over the six months to June 2023.
CBA estimates that a further $52 billion worth of fixed rate mortgages will expire in the 6 months to December 2023:
As such, around 85% of the RBA’s rate hikes will be felt by borrowers by year’s end, versus around 60% currently.
Furthermore, by mid 2024, Australian households will be paying their highest share of income on debt repayments on record:
Therefore, mortgage stress is set to rise further even if the RBA keeps the official cash rate on hold.
This will arise via a combination of rising unemployment and the further expiry of fixed rate mortgages.
