‘Mortgage stress’ increases to its highest since September 2008 with 27.1% of mortgage holders now ‘At Risk’

New research from Roy Morgan shows an estimated 1.35 million mortgage holders (27.1%) were ‘At Risk’ of ‘mortgage stress’ in the three months to March 2023. This period encompassed one interest rate increases of 0.25% taking official interest rates to 3.6% in early March.

This is the highest number of mortgage holders considered ‘At Risk’ since there were over 1.37 million ‘At Risk’ in September 2008. The proportion of mortgage holders considered ‘At Risk’ of mortgage stress in the three months to March 2023 (27.1%) is the highest for over a decade since November 2011 (27.7%).

The number of Australians ‘At Risk’ of mortgage stress has increased by 590,000 over the last year as the RBA increased interest rates for ten consecutive monthly meetings. Official interest rates are now at 3.6% in April 2023, the highest official interest rates since June 2012 over a decade ago.

However, despite the sharp increase in the level of mortgage stress during the last year the overall number 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 835,000 (17.3%) in the three months to March 2023 which is now significantly above the long-term average over the last 15 years of 660,000 (15.9%).

Mortgage Stress – Owner-Occupied Mortgage-Holders

Source: Roy Morgan Single Source (Australia), average interviews per 3 month period April 2007 – March 2023, n=2,728. Base: Australians 14+ with owner occupied home loan.

Mortgage Risk set to increase to 1.52 million mortgage if RBA raises rates by +0.25% in May

Official RBA interest rates are now at a decade high of 3.6% and there is a fair chance interest rates increase in May by +0.25% and perhaps in June as well by +0.25%. The latest ABS CPI figures for the March quarter 2023 show an annual inflation rate of 7.0%, – 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 May (+0.25% to 3.85%) and June (+0.25% to 4.1%).

In March 27.1% of mortgage holders, 1,352,000, were considered ‘At Risk’ and with potential future interest rate increases to come this would increase to almost 1-in-3 mortgage holders by June 2023.

If the RBA raises interest rates by +0.25% in May to 3.85% there will be 30.5% (up 3.4% points) of mortgage holders, 1,523,000, considered ‘At Risk’ in May 2023 – an increase of 171,000.

If the RBA raises interest rates by a further +0.25% in June to 4.1% there will be 31.1% (up 4.0% points) of mortgage holders, 1,557,000, considered ‘At Risk’ in June 2023 – an increase of 205,000.

Mortgage Risk at different level of interest rate increases in May & June 2023

Source: Roy Morgan Single Source (Australia), Jan. – Mar. 2023, n=3,538. 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 full-time employment in March hit a record high of 9 million as unemployment fell – April 4, 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 March following the RBA’s record tenth consecutive interest rate increases with 1.35 million mortgage holders now considered ‘At Risk’ of mortgage stress – the highest in almost 15 years:

“The latest Roy Morgan data shows mortgage stress in the Australian housing market has continued to increase with 1.35 million mortgage holders (27.1%) defined as ‘At Risk’ in March 2023, up 590,000 (+9.6% points) on a year ago before the RBA began hiking interest rates.

“The figures for March 2023 take into account the record ten straight RBA interest rate increases which lifted official interest rates from 0.1% in May last year to 3.6% in March. The RBA left interest rates unchanged at their meeting in April although next week’s decision on interest rates remains uncertain after today’s release of the latest ABS Inflation figures.

“The ABS quarterly CPI figures for the year to March 2023 show Australian inflation falling to 7.0% - down from a 33-year high of 7.8% in December quarter 2022. The latest ABS monthly CPI figures for March 2023 have fallen to 6.3%, down from 6.8% in February 2023 and 7.4% in January 2023.

“The slowing in the monthly inflation indicator was a key factor that prompted the RBA to pause its cycle of increases by leaving interest rates unchanged in April. The further reductions seen in the latest ABS Quarterly and Monthly Inflation figures for March 2023 takes some of the pressure off the RBA to resume its cycle of interest rate hikes next week.

“However, of concern is that the monthly ANZ-Roy Morgan Inflation Expectations indicator, which has proved a reliable predictor of future inflationary trends in the economy, increased 0.3% points in March to 5.6%. This result suggests that there are still inflationary pressures in the economy even if the early figures from this year do show a reduction compared to late 2022.

“If the RBA does raise interest rates again in next week by 0.25% Roy Morgan forecasts that mortgage stress is set to increase to over 1.5 million mortgage holders (30.5%) considered ‘At Risk’ by May 2023 – this would be a record high number of mortgage holders considered ‘At Risk’.

“Of more concern is the rise in mortgage holders considered ‘Extremely At Risk’, now estimated at 835,000 (17.3%) in March 2023 – the highest for over a decade since July 2012 (17.6%). This is an increase of almost 400,000 mortgage holders from a year ago (+6.6% 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 9 million Australians were employed full-time in March 2023, up over 300,000 from March 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.