This was published 5 months ago
Pressures grow as more buyers fall behind on their mortgages
By Shane Wright
More Australians are falling behind on their mortgage repayments as the combination of inflation and high-interest rates bite deep into family finances, the nation’s top economic watchdogs have conceded.
Minutes of the most recent meeting of the Council of Financial Regulators, a group that includes the Reserve Bank, Treasury, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission, show a lift in the number of hardship applications to the nation’s banks for relief from their home loan repayment plans.
Economic regulators have noted a growing proportion of Australians are struggling with their mortgage repayments.Credit: Justin McManus
Arrears and default rates on mortgages effectively evaporated in 2020 after the collapse in mortgage interest rates, the introduction of government support programs through COVID and subdued inflation.
But there have been growing signs of financial stress in the household sector, especially for those people with mortgages.
S&P Global’s most recent quarterly measure of mortgage-backed securities showed a lift in the proportion of loans in arrears. The areas with the largest number of people behind on their repayments were all in outer suburban areas with high proportions of first-time buyers, such as Craigieburn in Melbourne and Casula in Sydney.
The minutes of the council’s March 6 meeting show that while regulators believe risks to the financial system due to the pressure on households appeared contained “for the time being”, they needed to be watched carefully.
“Most households continue to be able to meet their debt servicing and other essential spending commitments, although many have had to make adjustments to their finances in a period of higher inflation and interest rates,” the minutes showed.
“However, hardship applications had risen materially over the past year.”
The minutes showed ASIC has analysed the experience of people seeking financial hardship assistance from their banks.
“There had also been an increase in the share of households who had fallen behind on loan payments (from historically low levels), and council members expect some further increase in the period ahead,” the minutes showed.
“The council noted that the risks to household balance sheets, and in turn financial stability, would increase if inflation were to remain high for longer than anticipated or if labour market conditions deteriorate more than expected.”
National Australia Bank’s outgoing chief executive, Ross McEwan, said last month most customers were faring well, but warned the country’s second-largest bank was facing higher mortgage arrears.
Suicide Prevention Australia chief executive Nieves Murray says cost-of-living pressures are increasing across most households.Credit: Alex Ellinghausen
The strain on borrowers is also evident in the latest Suicide Prevention Australia regular measure of community pressures, with a further increase in the number of people reporting a higher than normal level of cost-of-living and personal debt distress.
The regular survey, released on Monday, showed half of those surveyed were in distress through the March quarter, a four percentage point increase on the December quarter and 12 points up over the past year.
Full-time workers, households earning more than $150,000 and those with children at home have all experienced large increases in the proportion in distress over the past 12 months.
Suicide Prevention Australia chief executive officer Nieves Murray said the survey was reflecting other measures of financial pressure such as the recent increase in the unemployment rate.
“When you couple our data over the past 18 months with recent Australian Bureau of Statistics data showing living costs for employee households continue to rise well-above the national average, at the same time as real household income is declining, you can see Australia is in the midst of a growing cost-of-living challenge,” she said.
“We know it’s two to three years after a critical event like a pandemic or environmental disaster that suicide rates often begin rising. The fact we are seeing cost-of-living distress continuing to escalate despite a softening in inflation and interest rates should be of real concern for our political and corporate leaders.”
Treasurer Jim Chalmers addressing the Financial Review business summit on Monday.Credit: Oscar Colman
Treasurer Jim Chalmers, speaking at the Australian Financial Review’s business summit in Sydney today, said the nation’s medium-term economic prospects were strong.
But he said last week’s national accounts, which showed the economy grew by just 0.2 per cent in the final three months of 2023, highlighted the pressures facing households.
“We understand people are still under pressure, and there is no shortage of challenges coming at us,” he said.
“Australians are tightening their spending as the impact of higher interest rates and persistent inflation bites. We see that in the consumption data and in savings too.”
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