Australian homeowners are being squeezed like never before, with a record number in extreme mortgage stress – and that’s before factoring in the full fallout from the RBA’s most recent rate hike.
A staggering 31.8 per cent of mortgage holders – or 1.75 million households – are now considered “at risk” of mortgage stress, according to new Roy Morgan research, while a record 23 per cent – 1.262 million – are “extremely at risk”.
Roy Morgan says mortgage holders are considered at risk if their repayments exceed a specific proportion – somewhere between 25 and 45 per cent, depending on income and spending) of household income, based on their earnings and spending.
They are classified as extremely at risk if even an interest-only repayment surpasses that threshold.
The September figures predate the impact of the Reserve Bank’s most recent cash rate hike to a 15-year high of 4.6 per cent – while handed down on September 29, the increase didn’t come into effect on mortgage repayments until October.
And the outlook is bleaker still, with another increase expected next week.
Should another rate rise hit on Melbourne Cup day, hundreds of dollars could be slapped onto the annual repayments of millions of borrowers, pushing the tally of at-risk Australians to an estimated 1.821 million.
And the pain may not end there. If the cash rate is hiked again to 5.1 per cent before Christmas, Roy Morgan estimates 34.3 per cent of mortgage holders – or 1.887 million Australians – would be at risk.
“If this were to happen, the level of mortgage stress would be at its highest rate since June 2008 over 18 years ago,” Roy Morgan chief executive Michele Levine said.
The mortgage stress figure of 31.8 per cent in the three months to September is up a hefty 7.9 percentage points since January, following four RBA rate hikes this year, although it remains below the record 35.6 per cent reached in 2008.
Levine pointed out mortgage stress had actually eased slightly in September – that was, until the Reserve Bank’s latest hike.
“The good news is that mortgage stress moderated slightly in September before the Reserve Bank (RBA) increased interest rates at the end of the month,” she said.
“The key driver of the moderation of mortgage stress in September was rising household incomes amongst mortgage holders.”
A rate rise next week is widely expected, with Commonwealth Bank backflipping its November prediction from a hold to a hike following Wednesday’s inflation figures.
Markets are also pricing in roughly an 80 per cent chance of an increase, up from 60 per cent before the inflation read.
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