‘Mortgage stress’ near record low in mid-2021

New research from Roy Morgan shows an estimated 677,000 mortgage holders (17.3%) were at risk of ‘mortgage stress’ in the three months to May 2021. This period encompassed the end of the JobKeeper wage subsidy (end of March 2021), low community transmission of COVID-19 and only a few ‘short and sharp’ lockdowns and border closures to deal with outbreaks.

This level of mortgage stress is down sharply on a year ago when an estimated 794,000 mortgage holders (19.4%) were at risk during the early stages of the COVID-19 pandemic in the three months to May 2020.

The low rate of ‘At Risk’ mortgages since the pandemic began reflects the improvement in employment conditions in the first half of 2021 with full-time employment rising for eight straight months, the support provided to the economy by the Federal Government as well as measures taken by banks and financial institutions to support borrowers by giving borrowers in financial distress mortgage ‘holidays’ and record low interest rates during this period.

Although the level of financial support provided by Governments, banks and financial institutions has been scaled back, the emergency payments made in Melbourne’s recent lockdown in May/June as well as the increasing support offered to those impacted by the current lockdown in Sydney show both Federal and State Governments stand ready to respond with assistance to those in financial hardship when required.

The enduring impact of the record financial support provided to Australians over the last 18 months as well as the record low interest rates, set by the RBA at only 0.1%, are providing an enduring level of support to mortgage holders during 2021 even after much of this support has been withdrawn.

Mortgage Stress – Owner-Occupied Mortgage-Holders

Source: Roy Morgan Single Source (Australia), average interviews per 3 month period April 2007 – May 2021, n=2,674. Base: Australians 14+ with owner occupied home loan.

Roy Morgan has also tracked the impact of COVID-19 on the employment situations of Australians. In May 2020, 11.2 million working Australians (72%) reported a change to their employment circumstances because of COVID-19, and in June 2021 just prior to the current lockdowns in Melbourne and Sydney there were still over 9.6 million reporting their employment situation had changed – see more detail here.

Many of these employment changes are negative and include having ‘work hours reduced’, ‘not having any work offered’, ‘have been stood down for a period of time’, ‘business has slowed or stopped completely’, ‘had pay reduced for the same number of work hours’ or being ‘made redundant’.

For Australians with negative employment changes due to COVID-19 mortgage stress is higher with 19.9% now in ‘mortgage stress’ – over 2% points higher than for all mortgage holders. In addition, over one-in-seven, 14.7%, are ‘extremely at risk’.

Mortgage Risk for those with negative employment changes due to COVID-19

Source: Roy Morgan Single Source (Australia), March – May 2021, n=2,942. Base: Australians 14+ with owner occupied home loan.

How are mortgage holders considered ‘At Risk’ or ‘Extremely At Risk’ determined?

Roy Morgan considers the risk of ‘mortgage stress’ among Mortgage holders in two ways:

Mortgage holders are considered ‘At Risk’¹ if their mortgage repayments are greater than a certain percentage of household income – depending on income and spending.

Mortgage holders are considered ‘Extremely at Risk’² if even the ‘interest only’ is over a certain proportion of household income.

A near record low of only 1-in-6 mortgage holders were ‘At Risk’ in May 2021 as the wild swings of the pandemic contributed to rises and falls in those considered ‘At Risk’ over the last year

In the three months to May 2021, only 17.3% of mortgage holders were ‘At Risk’ (677,000) which is well down on a year ago during the early stages of the pandemic. In the three months to May 2020 there were 794,000 (19.4%) mortgage holders ‘At Risk’ which quickly increased to 834,000 (21.7%) in the three months to June 2020 in the early period of the pandemic as the nationwide lockdown was imposed.

The Government support and mortgage holidays provided by banks and other financial institutions softened the situation for many over the next few months as most of the country emerged quickly from the lockdown and, with the exception of Victoria, didn’t face another sustained lockdown last year.

During the middle part of last year the number of mortgage holders ‘At Risk’ dropped from the peak in June 2020 and was below 800,000 for a few months before rising again into the end of 2020 as Government support was progressively withdrawn and mortgage holidays came to an end.

The opening of State borders and relaxing of onerous restrictions during the first half of 2021 then led to sustained improvements in the employment markets with full-time jobs increasing for eight straight months and the number of mortgage holders ‘At Risk’ has dropped consistently over the last few months.

Over half of ‘At Risk’ mortgage holders are considered ‘Extremely At Risk’

Of those mortgage holders considered ‘At Risk’ in the three months to May 2021 more than half, 440,000 or 11.8% of all mortgage holders, were considered ‘Extremely at Risk’, down from 480,000 (12.3%) mortgage holders ‘Extremely at Risk’ a year ago in the three months to May 2020.

The trend of mortgage holders considered ‘Extremely at Risk’ has followed a similar trend to the larger group considered ‘At Risk’ since the pandemic began. There was an initial spike in mortgage holders considered ‘Extremely at Risk’ during the early period of the pandemic before extensive Government support and mortgage holidays for those in financial distress kicked in to support the economy.

During this period those mortgage holders considered ‘Extremely at Risk’ dropped considerably to a record low of 384,000 (11.0%) in the three months to October 2020 before beginning to rise again as Government support was progressively withdrawn and mortgage holidays began to end.

However, the rise in mortgage holders considered ‘Extremely at Risk’ was short-lived and peaked at 526,000 (13.7%) in the three months to January 2021.Since then a fast growing employment market throughout the first half of 2021 has increased full-time jobs to a new record and with record low interest rates during this period mortgage holders considered ‘Extremely at Risk’ has dropped every month since.

These are the latest findings from Roy Morgan’s Single Source Survey, based on in-depth interviews conducted with over 50,000 Australians each year including over 10,000 owner-occupied mortgage-holders.

Michele Levine, Chief Executive Roy Morgan, says contrary to fears at the outset of the COVID-19 pandemic the support provided by the Federal Government and banking and financial institutions to those in financial distress has led to a sustained period of low mortgage stress:

To understand more about mortgages in the full context of household finances and the uncertainties caused by the COVID-19 coronavirus, ask Roy Morgan.

View our range of Home Loan Related Profiles.

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¹"At Risk" is based on those paying more than a certain proportion of their after-tax household income (25% to 45% depending on income and spending) into their home loan, based on the appropriate Standard Variable Rate reported by the RBA and the amount they initially borrowed.

²"Extremely at Risk" is also based on those paying more than a certain proportion of their after-tax household income into their home loan, based on the Standard Variable Rate set by the RBA and the amount now outstanding on their home loan.