PHOTO: Mortgage stress. RAWPIXEL
Additional increases in interest rates by the RBA could potentially place 1.6 million Australian households at risk of mortgage stress.
The initial RBA meeting of the year, scheduled for Tuesday, holds significant implications for numerous Australians teetering on the brink of financial vulnerability.
Despite signs of softened inflation, persistent concerns about further rate hikes linger among Australians after enduring 18 months of such increases.
Recent research from Roy Morgan indicates that, in the three months leading to December 2023, 1.527 million mortgage holders were in jeopardy of experiencing mortgage stress. This period encompassed a 0.25% interest rate hike on Melbourne Cup Day, bringing rates to 4.35%.
Mortgage Stress indicator. Source: Roy Morgan
Mortgage holders are deemed at risk if they allocate approximately a third or more of their income towards loan repayments. If the RBA enacts a 0.25% rate hike in February, the number of at-risk mortgage holders would rise to 1.55 million, marking an increase of 23,000 households from December 2023.
An additional 0.25% hike in March could escalate the “at risk” figure to 1.6 million households, with nearly one in five mortgage holders facing “extreme risk.”
CEO of Roy Morgan, Michele Levine, emphasized that ongoing inflation pressures might pave the way for further rate hikes in February and March 2024.
While acknowledging the easing of inflation pressures, Levine highlighted the possibility of a higher-th
an-expected inflation reading for December reigniting fears of persistent inflation throughout 2024.
Levine underscored the role of household incomes and employment rates in influencing mortgage stress, noting that the robust employment market in Australia over the past year has contributed to reducing overall mortgage stress in December.
However, she pointed out that the surge in interest rates over the last 18 months since May 2022 has led to a significant increase in the number of mortgage holders classified as “at risk.”
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Levine warned that if additional rate hikes materialize, mortgage stress levels could reach heights not seen since the Global Financial Crisis, particularly if there is a resurgence in inflation prompting further interest rate increases in 2024.