About 1.5 million Australians at risk of sharpest cash rate hikes in decades

More Australians are at risk of mortgage stress than ever and home loan arrear figures are also creeping up, the latest data shows.

A record 1.5 million Australians were at risk of mortgage stress in the three months to July, as a growing number of home loan borrowers grappled with making ends meet due to the sharpest cash rate increases in decades.

New research by Roy Morgan showed that compared to a year earlier 642,000 more Australians were paying between 25 and 45 per cent of their income into their home loan, putting more at risk of financial stress than even during the Global Financial Crisis.

The larger size of the home loan market today means that proportionally, close to a third of borrowers (29.2 per cent) are at risk.

That is up from the 28.8 per cent in the quarter ending June but below the record high proportion of mortgage holders at risk during the GFC in mid 2008.

Those considered “extremely at risk” had increased to one million or 20.3 per cent, significantly above the 15-year average of 15.4 per cent, the researchers said.

A separate report by S&P Global Ratings on Monday said rising interest rates and cost-of-living pressures had pushed overdue mortgage repayments slightly higher during the second quarter of 2023.

And while “most borrowers appear to be managing the confluence of financial pressures”, the ratings agency said mortgage arrears would continue rising for months to come and would not peak until next year, when the total impact of 12 interest rate rises hit home.

“To date, arrears increases have been delayed by built-up savings and strong jobs growth,” S&P said.

“Strong refinancing conditions have also helped temper arrears.

“Despite the difficult times ahead for some borrowers, we expect strong employment conditions and proactive efforts by lenders to work with affected borrowers to minimize any dislocation in mortgage markets and systemic risk.”

Prime mortgage arrears rose to 0.97 per cent in the June quarter, up from 0.95 per cent in March 2023, while nonconforming arrears fell to 3.47 per cent in June, down from 3.70 per cent in the period ending March 31.

That was due to a dilution effect as loan balances rose during the period at a higher rate than the value of nonconforming loans in arrears.

Roy Morgan chief executive Michele Levine said the “record-breaking series of interest rate increases” may not be finished if the economy is still faces inflationary pressures.

The number of Australians struggling “at risk” of mortgage stress would jump to 1.57m if the Reserve Bank moves to raise rates again at its September meeting next Tuesday, Roy Morgan found.

Ms Levine said: “Although many have suggested the RBA has finished its cycle of interest rate increases, the low Australian Dollar and high petrol and energy prices adding to inflation may force their hand for further interest rate increases in the months ahead.

“These possibilities are a key factor in why we have modelled two further interest rate increases in September and October.”

Spending on credit cards has begun to rise as savings levels plummet. However, households are not yet charging more than they are earning on their cards, as they did 15 years ago.