Mortgage holders on the brink: Roy Morgan

The research indicated that an estimated 1.43 million mortgage holders, accounting for 28.8 per cent of all mortgage holders, were deemed “at risk” of mortgage stress during the three months leading up to May 2023.

While the Reserve Bank of Australia’s (RBA) decision to hold the cash rate steady in July may come as good news to some mortgage holders, the cumulative effect of 12 rates hikes, taking the cash rate to 4.1 per cent, has placed a significant burden on many who are struggling to manage their substantial debt obligations.

In light of the rapid increase in interest rates, the central bank board decided to hold interest rates steady in July to provide “some time to assess the impact of the increase in interest rates to date and the economic outlook”.

The board noted despite inflation having passed its peak and fallen below 6 per cent in May “inflation is still too high”, which makes life “difficult for everyone”.

In addition, the board acknowledged that elevated inflation erodes the value of savings, straining household budgets, hindering business investments, and exacerbating income inequality.

Consequently, the board hinted that “further monetary policy tightening” might be necessary to bring inflation back within the target range of 2–3 per cent.

The Roy Morgan report warned that if the RBA raises interest rates by an additional 25 bps to reach 4.35 per cent, the number of mortgage holders at risk of mortgage stress will surpass the levels reached during the global financial crisis in early 2008 (1,455,000).

The report estimated that 1,485,000 mortgage holders would be considered “at risk” if the cash rate hits 4.35 per cent.

While all eyes are on interest rates, the greatest impact on an individual’s or household’s ability to pay their mortgage is not interest rates, it’s if they lose their job or main source of income, the chief executive of Roy Morgan, Michele Levine said.

The latest data from the Australian Bureau of Statistics (ABS) showed unemployment rate had remained at a 50–year record low around 3.5 per cent in May 2023.

“If there is a sharp rise in unemployment, mortgage stress is set to increase towards the record high of 35.6 per cent of mortgage holders considered ‘at risk’ in May 2008 during the global financial crisis,” Ms Levine said.

However, the latest pause in interest rates comes as a “welcome relief” for many households and reflects the board’s position to review the impact of the 12 rate hikes on the economy, Minister for Finance Katy Gallagher said.

“Whether it be consumption data or confidence data, we are seeing the effects of tightening monetary policy.

"While this is welcome news, we understand that many people remain under strain from rising mortgage payments and cost of living increases.

"We're working alongside the Reserve Bank, not against it and our improved fiscal position is making sure we're not adding to inflation."

[Related: Owner occupier refinancing sets new record]