Mythical mortgage cliff still nowhere to be seen

It’s time to stop talking about mortgage stress. It’s a completely misleading term which focuses on a problem that does not exist: a perceived inability or willingness of people to pay their mortgage bills.

This week we had the results from the major banks. This was meant to be the week ‘‘mortgage stress’’ broke out as a major issue.

But it’s nowhere to be seen in the bank results.

Indeed, the related “mortgage cliff” misnomer – where the hordes who ‘‘fixed’’ in the low rate Covid period would battle to pay freshly elevated monthly bills – has also failed to materialise.

Here’s Maria Trinci, a financial services partner at KPMG: "The major banks have reported a modest rise in arrears, which suggests that interest rate rises and the erosion of savings buffers may be starting to impact ­consumers.

"However, this rise ­remains small and from a record low base, demonstrating the resilience of Australian consumers."

And so it goes across the banking system.

In fact, if you look at big four banks collectively, then mortgage stress indicators remain lower than they were pre-Covid.

Each year the banks release results, and each year there is a parallel escalation of reports on an impending drama where mortgage holders are set to fold under the pressure of higher rates.

This time last year, The Australian reported, "a yawning gap between the hard numbers and the gloom and doom among forecasters".

In 2023, we get a similar story.

Perhaps everyone – investors included – would be better served if the issue was rebranded as ‘‘household finance stress’’ because many people are clearly struggling with surging interest rates and the wider cost of living.

But the reality is that current conditions are not triggering delinquencies or mortgage defaults.

If you tunnel into the bank results there is some deterioration in the past six months, there is a teeny uptick in some ‘‘mortgage stress’’ indicators, but consumers who are feeling the pinch are clearly feeling it elsewhere.

Maybe the worst is still to come, and it is going to become a serious problem for banks and their shareholders, but that is only a possibility

So where is the negative outcome of 13 successive interest rate hikes?

Where is the stress?

As research analyst Eliza Owen of CoreLogic has put it: "Mortgage stress is a very subjective concept.

“Once you go beyond bank date, it's pretty hard to pin down.”

Diana Mousina, senior economist at AMP, suggests that the banks’ numbers do not tell us everything we need to know. For example, consumer spending is declining, but that will not be detailed in a ‘‘Big Four’’ ­result.

She points to recent RBA research which suggests that some younger mortgage holders are experiencing mortgage stress, as it is widely understood. Around 18 per cent of households on variable mortgages are now thought to be experiencing ‘‘negative cash flow’’.

“We just don’t have the figures yet to really show the full picture, especially a breakdown of which parts of the market are being hit the most,” says Mousina.

Logic would suggest those with the biggest and newest mortgages are on the frontline – and that would be younger households that only entered the market in the last three years or so.

On this basis, household spending, consumption in general and just about any other spending will be hit first. However, spending on the mortgage looks as if it will continue under almost any circumstances.