ISCOVER
Despite Australia being in a rate-easing cycle, mortgagors are experiencing the highest risk rate of mortgage stress since January 2025.
New Roy Morgan research has revealed that 28.4 per cent of mortgage holders were at risk of mortgage stress in the three months to June 2025, up 1.5 percentage points from May.
The figures mark the highest rate of mortgage stress since January 2025, before the Reserve Bank of Australia (RBA) began reducing the official cash rate.
Moreover, the number of Australians considered extremely at risk is numbered at just over 1 million (19.7 per cent of mortgage holders), significantly above the long-term average over the last 10 years (14.8 per cent).
The primary driver of the rise in mortgage stress was the bigger borrowing amounts taken out by people buying a home and the larger amounts left outstanding on home loans generally, according to the report.
The number of borrowers at risk of mortgage stress has increased by 684,000 since May 2022, when the RBA began a cycle of interest rate increases.
Mortgage stress set to drop
While Roy Morgan is projecting that the number of mortgage holders considered at risk will remain unchanged in July (after rates were left unaltered at 3.85 per cent this month), it does expect the risk of mortgage stress to ease.
The market is generally tipping the central bank to lower rates when its board next meets in August.
If the RBA cuts interest rates in August by 0.25 per cent to 3.6 per cent, Roy Morgan expects the number of at-risk mortgage holders to decrease by 75,000 people, to 1.4 million, a drop of 1.4 percentage points.
This would still be 27 per cent of mortgage holders.
Another 0.25 per cent interest rate cut in September would have a “significant impact” on mortgage stress and reduce the share of mortgage holders considered at risk to 25.5 per cent of mortgage holders, the researchers added.
This would be equivalent to 1.3 million borrowers – a drop of 2.9 percentage points, or 155,000 mortgage holders, from current figures.
Michele Levine, Roy Morgan CEO, noted the impact of rate cuts had marginally reduced mortgage stress but has also led to larger loan sizes for home borrowers, putting upward pressure on mortgage strain.
Levine said: “Although these interest rate cuts have reduced interest rates in the last few months, the latest figures for June show an increase in levels of mortgage stress due to mortgagors borrowing larger amounts and having larger amounts outstanding on existing loans while income growth remains more modest.
“This is not surprising when one considers other data sources which show national house prices in Australia. The ABS ‘Total Value of Dwelling’ release showed average dwelling prices in Australia exceeding $1 million for the first time in the March quarter 2025, and more recent market figures show that figure continuing to increase to new record highs in recent months.”
Levine flagged that the impact of lower rates on mortgage pressure can diminish in the long run, and that other factors are more important in determining mortgage strain.
“These results show although reducing interest rates generally does lead to lower levels of mortgage stress, this effect may only be short-term as new buyers entering the market are able to borrow more money for larger loans to get into the market, thus leading to an increase in mortgage stress,” she concluded.
“Finally, it is important to appreciate that interest rates are only one of the variables that determines whether a mortgage holder is considered at risk – the largest impact on whether a borrower falls into the at risk category is related to household income – which is directly related to employment.”
Following two reductions to the official cash rate in 2025 (and the beginning of the first rate-easing cycle for four years), Australians are reacting to headwinds and tailwinds for those wishing to buy property as house prices continue to rise.
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