Mortgage stress hits decade high, risk of loan defaults rises

Mortgage holders are experiencing the highest levels of stress in a decade as consecutive interest rate rises place them at increased risk of defaulting.

New research from Roy Morgan shows an estimated 1.1m mortgage holders were at risk of mortgage stress in the three months to December 2022, with the figure now higher than the long term average dating back to early 2007.

The three month period spanned three interest rate rises which took the cash rate to 3.1 per cent in early December – the highest since December 2012.
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New Roy Morgan research estimated 1.1m mortgage holders were at risk of mortgage stress in December.

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The research found 23 per cent of mortgage holders considered themselves at risk of mortgage stress, higher than the long-term average of 22.8 per cent but lower that the peak of the global financial crisis of 35.6 per cent in early 2009.

Meanwhile, the number of mortgage holders considered ‘extremely at risk’ increased to 666,000 (15.0 per cent) in the same period – falling in line with the average of 659,000 people (15.9 per cent) over the last 15 years.

By March 2023, the report estimated that 1.2m mortgage holders (26.3 per cent) will be considered at risk if interest rates continue to climb.

Roy Morgan CEO Michele Levine said mortgage holders were considered at risk if their mortgage repayments were higher than a certain percentage of household income.

“The latest ABC CPI figures for the year to December 2022 show Australian inflation hitting a 33 year high of 7.8 per cent – the highest since March 1990.

“The rising inflation level in Australia, and all the indications from the RBA, suggest interest rates will increase again when the RBA meets again in February by +0.25 per cent and again in March by another + 0.25 per cent to 3.60 per cent.

Annual inflation hit 7.8 per cent last year – the highest since 1990. Picture: David Swift

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“When considering these figures on mortgage stress it is always important to take into account that interest rates are only one of the variables that determines whether a mortgage holder is considered at risk.”

The survey’s results are based on interviews with over 60,000 Australians, 10,000 of which are owner-occupied mortgage holders.

Ms Levine said the variable that has the greatest impact on a borrower in the ‘at risk’ category is related to household income and employment.

Household income and employment were considered important factors to prevent mortgage holders from being at risk.

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The report noted there has already been an increase in unemployment to 9.3 per cent in the December period.

“The latest Roy Morgan employment estimates show a near-record 13.6 million Australians were employed in December 2022, up by over 650,000 since February 2020 when there were 12.9 million employed pre-pandemic.

“The strong growth in the jobs market has attracted more Australians into the labour force and there are now over 1.38 million unemployed Australians (9.3% of the workforce) compared to 1.17 million pre-pandemic.”