Mortgage stress hits levels unseen since GFC: 94,000 extra borrowers at risk if RBA rate continues to hike this year

Rising mortgage stress levels reach post GFC-era highs as 1.43 million Australian home borrowers face stress, warns Roy Morgan.

Mortgage stress is rising to levels not seen since the GFC, and potential further interest rate increases from the Reserve Bank later this year would put 94,000 more borrowers more at risk, according to researchers at Roy Morgan.

Based on a survey of 10,000 owner-occupied home borrowers, they estimate about 1.43 million of them are ‘at risk’ of mortgage stress, the highest number since the depths of the global financial crisis in May 2008.

The number represents about 28.8 per cent of all mortgage holders, the researchers said.

“Further increases will spike these numbers even further,” Roy Morgan chief executive Michele Levine said.

On Tuesday, the RBA left the cash rate steady at 4.1 per cent after raising it at twelve of its last fourteen monthly meetings, as economists become increasingly concerned that the central bank’s determination to tame inflation risks tipping the nation into recession.

After a combined increase of 4 percentage points since May 2022, the central bank decision on Tuesday will “provide some time to assess the impact of the increase in interest rates to date,” RBA governor Philip Lowe said.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” he added.

There is a cash flow lag of about three months between the time when a cash rate increase is announced and the time when the higher loan payments begin, meaning the full impact of the rate increases are yet to be fully felt.

“Today’s rate pause is sure to be a welcome breather for many mortgage holders and provides some certainty for family budgets, especially over the school holidays,” said NAB homeownership executive Megan Bond.

However, NAB economists are still predicting another couple of rises, and “it takes time for the full effect of interest rate increases to filter through,” she said, asking borrowers to plan ahead including by boosting their mortgage offset accounts to lower interest charges.

Rising mortgage stress levels reach GFC-era highs as 1.43 million Australian home borrowers face stress, research firm Roy Morgan has warned.

In the last year, the number of Australians ‘at risk’ of mortgage stress have increased by 627,000 as the RBA hiked interest rates from near zero to 4.10 per cent, the Roy Morgan research showed.

If the RBA were to increase interest rates all the way to 4.6 per cent this year – as some economists expect – that would put 1.53 million ‘at risk’ or stress, an increase of 94,000. That would be equivalent to 29.9 per cent of borrowers, the researchers said.

Another key concerning measure, Ms Levin said, was the 922,000 mortgage holders considered to already be ‘extremely at risk’ of mortgage stress in the three months to May 2023, representing 19.3 per cent of all borrowers.

That was the highest level since November 2011.

Those considered “at risk” are spending between 25 per cent and 45 per cent of their after-tax household income on mortgage repayments. When just the interest-only portion of those repayments is above that threshold, the borrowers are classified as “extremely at risk”.