‘Mortgage stress’ increases to its highest since August 2008 with 27.8% of mortgage holders now ‘At Risk’
New research from Roy Morgan shows an estimated 1.38 million mortgage holders (27.8% of mortgage holders) were ‘At Risk’ of ‘mortgage stress’ in the three months to April 2023. This period encompassed two interest rate increases of 0.25% taking official interest rates to 3.6% in April.
This is the highest number of mortgage holders considered ‘At Risk’ since there were over 1.4 million ‘At Risk’ in August 2008. The proportion of mortgage holders considered ‘At Risk’ of mortgage stress in the three months to April 2023 (27.8%) is the highest for over a decade since October 2011 (28.3%).
Over half a million more household at risk of mortgage stress after a year of interest rate increases
The number of Australians ‘At Risk’ of mortgage stress has increased by 529,000 over the last year as the RBA increased interest rates at eleven of the last twelve-monthly meetings. Official interest rates are now at 3.85% in May 2023, the highest official interest rates since May 2012 over a decade ago.
Despite the sharp increase in the level of mortgage stress during the last year it remains below the high reached during the Global Financial Crisis in early 2009 of 35.6% (1,455,000 mortgage holders) – although this level is set to be reached with further interest rate increases.
The number of mortgage holders considered ‘Extremely At Risk’, has now increased to 881,000 (18.5%) in the three months to April 2023 which is now significantly above the long-term average over the last 15 years of 661,000 (15.9%).
Mortgage Stress – Owner-Occupied Mortgage-Holders
Source: Roy Morgan Single Source (Australia), average interviews per 3 month period April 2007 – April 2023, n=2,733.
Base: Australians 14+ with owner occupied home loan.
Mortgage Risk set to increase to over 1.4 million if RBA raises rates by +0.25% in June
Official RBA interest rates are now at a decade high of 3.85% and there is a fair chance interest rates increase in June by +0.25% and perhaps in July as well by +0.25%. The latest ABS CPI figures for the month of April 2023 (released on Wednesday May 31, 2023) show an annual inflation rate of 6.8%, – well above the target range of 2-3% over the course of the cycle.
Roy Morgan has modelled the impact of two potential RBA interest rate increases of +0.25% in both June (+0.25% to 4.10%) and July (+0.25% to 4.35%).
In April 27.8% of mortgage holders, 1,378,000, were considered ‘At Risk’ and with potential future interest rate increases to come this would increase to over 30% of mortgage holders by July 2023.
If the RBA raises interest rates by +0.25% in June to 4.10% there will be 29.2% (up 1.4% points) of mortgage holders, 1,408,000, considered ‘At Risk’ in June 2023 – an increase of 30,000.
If the RBA raises interest rates by a further +0.25% in July to 4.35% there will be 30.2% (up 2.4% points) of mortgage holders, 1,455,000, considered ‘At Risk’ in July 2023 – an increase of 77,000.
Mortgage Risk at different level of interest rate increases in June & July 2023
Source: Roy Morgan Single Source (Australia), Feb. – Apr. 2023, n=3,702. 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.
Unemployment is the factor which has the largest impact on income and mortgage stress
It is worth understanding that this is a conservative model, essentially assuming all other factors remain the same. And of course we are already seeing an increase in unemployment (Australian employment hit a record high above 13.8 million in April as unemployment fell 0.9% to 8.5% – May 9, 2023).
The greatest impact on an individual, or household’s, ability to pay their mortgage is not interest rates, it’s if they lose their job or main source of income.
Michele Levine, CEO Roy Morgan, says mortgage stress increased again in April as the RBA’s interest rate increases early in 2023 flowed through to the wider mortgage market with 1.38 million mortgage holders now considered ‘At Risk’ of mortgage stress – the highest since 2008:
“The latest Roy Morgan data shows mortgage stress in the Australian housing market has continued to increase with 1.38 million mortgage holders (27.8%) defined as ‘At Risk’ in April 2023, up 529,000 (+10.2% points) on a year ago before the RBA began a record-breaking series of interest rate rises.
“The figures for April 2023 take into account the ten straight RBA interest rate increases which lifted official interest rates from 0.1% in May last year to 3.6% by April. Although the RBA did leave interest rates unchanged at their meeting in April, they subsequently increased interest rates again in the first week of May to 3.85% – just before the Albanese Government’s first Federal Budget.
“The ABS monthly CPI figures for the year to April 2023 show Australian inflation accelerating to 6.8%. up from 6.3% in the year to March 2023. This re-acceleration in the CPI followed a monthly spike in the ANZ-Roy Morgan Inflation Expectations in March (+0.3% points) which foretold of rising inflationary pressures in the economy. The good news is that this spike in Inflation Expectations proved short-lived, with the measure declining in subsequent weeks.
“Despite the lowering of Inflation Expectations over the last month, the spike in the ABS monthly CPI figure – which was released earlier this week – has led many to believe the RBA will continue its cycle of interest rate increases next week by lifting interest rates by +0.25% to 4.1%.
“If the RBA does raise interest rates again next week by 0.25% Roy Morgan forecasts mortgage stress is set to increase to over 1.4 million mortgage holders (29.2%) considered ‘At Risk’ by June 2023.
“Of even more concern is the rise in mortgage holders considered ‘Extremely At Risk’, now estimated at 881,000 (18.5%) in April 2023 – the highest for over a decade since October 2011 (21.4%). This is an increase of over 400,000 mortgage holders from a year ago (+8% points).
“When considering the data on mortgage stress it is always important to appreciate interest rates are only one of the variables that determines whether a mortgage holder is considered ‘At Risk’. The variable that has the largest impact on whether a borrower falls into the ‘At Risk’ category is related to household income – which is directly related to employment.
“The latest figures show rising interest rates are causing a large increase in the number of mortgage holders considered ‘At Risk’ and further increases will spike these numbers even further. If there is a sharp rise in unemployment mortgage stress is set to rise towards the record high of 35.6% of mortgage holders considered ‘At Risk’ in May 2008 during the Global Financial Crisis.
“The good news is that the latest Roy Morgan employment estimates show a record 13.8 million Australians were employed in April 2023, up over 600,000 from April 2022 indicating the strength of the labour market over the last year despite the RBA’s series of interest rate increases.”
These are the latest findings from Roy Morgan’s Single Source Survey, based on in-depth interviews conducted with over 60,000 Australians each year including over 10,000 owner-occupied mortgage-holders.
To understand more about mortgages in the full context of household finances and the uncertainties caused by the COVID-19 coronavirus and rising interest rates and inflation, ask Roy Morgan.
To learn more about Roy Morgan’s mortgage data, call (+61) (3) 9224 5309 or email askroymorgan@roymorgan.com.
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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.
Margin of Error
The margin of error to be allowed for in any estimate depends mainly on the number of interviews on which it is based. Margin of error gives indications of the likely range within which estimates would be 95% likely to fall, expressed as the number of percentage points above or below the actual estimate. Allowance for design effects (such as stratification and weighting) should be made as appropriate.
| Sample Size | Percentage Estimate |
| 40% – 60% | 25% or 75% | 10% or 90% | 5% or 95% | |
| 1,000 | ±3.0 | ±2.7 | ±1.9 | ±1.3 |
| 5,000 | ±1.4 | ±1.2 | ±0.8 | ±0.6 |
| 7,500 | ±1.1 | ±1.0 | ±0.7 | ±0.5 |
| 10,000 | ±1.0 | ±0.9 | ±0.6 | ±0.4 |
| 20,000 | ±0.7 | ±0.6 | ±0.4 | ±0.3 |
| 50,000 | ±0.4 | ±0.4 | ±0.3 | ±0.2 |
