Mortgage stress on the rise

The rising figure comes despite a decline in loan rates and a record-low cash rate of 1.5 per cent.

Roy Morgan found that while home loan rates in the three months ended July 2017 averaged at 5.25 per cent (down from 5.40 per cent for the same period in 2016), there has been an increase in mortgage stress for both those considered to be "at risk" (which is based on the amount originally borrowed) and those "extremely at risk" (based on the amount currently outstanding).

It stated that those at risk were those paying more than a certain proportion of their income on loan repayments (between 15 per cent and 50 per cent depending on income) based on the appropriate Standard Variable Rate reported by the RBA and the amount the respondent initially borrowed.

Those said to be extremely at risk were those paying more than a certain proportion of their household income (30 per cent to 45 per cent depending on income) into their home loans based on the Standard Variable Rate set by the RBA on the amount respondents owed on their home loan.

While those at risk rose by 0.3 per cent in a year, those considered to be extremely at risk increased by 0.4 per cent (from 12.4 per cent to 12.8 per cent).

According to the researchers, the main cause of the increase in mortgage stress was the fact that over the 12 months, the median household income of mortgage holders only increased by 2 per cent, well behind the increase in the median amount borrowed (up by 7.4 per cent) and the median amount outstanding (up by 13.1 per cent).

However, the RBA Standard Variable Rate over this period declined from 5.4 per cent to 5.25 per cent.

Speaking of the findings, Norman Morris, industry communications director at Roy Morgan Research, said: “It appears from this research that fewer people are taking out home loans and those that do have increased their borrowings, most likely as a result of low interest rates and rising house prices.

“With median household incomes among borrowers showing low growth over the last year, they are not paying off their loans as quickly and, as a result, outstandings are growing faster than household incomes.

“The result has been an increase in mortgage stress to the point where nearly one in six borrowers face[s] a potential problem.”

Mr Morris added: “When rates eventually rise, this is likely [to] lead to an even lower number of borrowers.”

He also suggested that existing mortgage holders who have borrowed in a low interest rate environment “are likely to face increased levels of mortgage stress”.

“The final impact, however, will also be determined by what happens to household incomes, which are currently showing very modest growth,” the director said.

[Related: Borrowers in the dark over rising rates]