Roy Morgan reports that the share of Australian households in mortgage stress has risen to its highest since 2011 with 27.2% of mortgage holders now considered ‘At Risk’:
A borrower is considered ‘At Risk’ when their mortgage repayments are greater than a certain percentage of household income (i.e. 25% to 45% depending on income and spending).
Roy Morgan estimates that an extra 92,000 borrowers would fall into stress if the RBA hikes interest rates another 0.25% next week, with a further 112,000 falling into stress if rates are increased a another 0.25% in May.
Roy Morgan cautions that it uses “a conservative model, essentially assuming all other factors remain the same. And of course we are already seeing an increase in unemployment”.
“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”.
Even if the RBA holds rates, borrowers will come under increasing pressure because of the fixed rate “mortgage cliff”.
According to Australian Bankers Association analysis of the Big Four Banks, around 600,000 borrowers switch from rates of around 2% to rates of between 5% and 6% over the next nine months:
As shown above, around triple the number of mortgages will expire over the June quarter (222,800) than expired over the March quarter (78,300).
The September (208,000) and December (184,000) quarters will also see heavy volumes of fixed rate mortgage expiries.
Mortgage rates have already risen beyond 3 percentage points above the rates at which these fixed rate mortgages were originated, which is the minimum serviceability buffer required by APRA in assessing whether someone can repay their debt.
Therefore, a huge number of borrowers could be pulled deep underwater as their fixed rate mortgages expire.
