Aussie Household Mortgage Stress Peaks

A new milestone has been reached in Australia's housing landscape as a record number of homeowners find themselves teetering on the edge of mortgage stress. With the Reserve Bank contemplating another interest rate hike, the situation could worsen, potentially drawing thousands more into financial uncertainty.

Roy Morgan's latest findings reveal that in January 2024, a staggering 1.609 million households were identified as being at risk of mortgage stress, marking an increase from the 1.56 million recorded in August and September. To the surprise of literally no one, the research attributes this surge mainly to the RBA's decision to steadily raise interest rates to the current 4.35% level.

Michele Levine, CEO of Roy Morgan, highlighted the concerning trend in a recent interview.

"The latest figures for January 2024 represent an increase of 802,000 mortgage holders considered 'at risk' since the RBA began raising interest rates in May 2022. The figures take into account 13 interest rate increases which raised interest rates by a total of 4.25 per cent points to 4.35 per cent. "

Levine further explained, "The extended pause in official interest rate increases for four months from July – October 2023 reduced the pressure on mortgage holders and allowed growth in several areas of the economy to 'catch up' and reduce mortgage stress from the mid-year highs above 1.56 million. However, the interest rate increase in November has added renewed pressure on mortgage holders."

Interest rates: Cash target rate chart

Alarmingly, the data reveals that 31 per cent of mortgage holders are now at risk of stress, the highest proportion since the Global Financial Crisis. Among them, 994,000 homeowners are classified as "extremely at risk," constituting 19.8 percent of mortgage holders – a figure significantly higher than the long-term average.

Roy Morgan forecasts that if the Reserve Bank proceeds with an interest rate hike at its next meeting in mid-March, the number of at-risk mortgage holders could climb to 1.64 million by April, adding an additional 29,000 households to the tally.

However, today's release of monthly inflation data, where the CPI remained steady at 3.4 percent for the year to January, suggests a potential delay in further rate hikes. Despite this, the prospect of a rate cut remains uncertain, with analysts speculating on the timing based on future inflation readings.

Steve Mickenbecker from Canstar, Australia's largest financial comparison site, commented on the implications.

"The 3.4 per cent annual inflation rate through to the end of January is good news for borrowers. The case for further cash rate increases is all but gone and projections for the timing of rate cuts may be brought forward."

He added, "The Reserve Bank will remain reluctant to cut the cash rate too soon and has shown far greater faith in quarterly inflation readings. The March quarterly release will come too early to signal a rate cut but the June quarterly release in late July could very much raise borrowers' hopes."

While Steven is correct in that this week’s CPI data is mostly positive for homeowners, the uncertainty of the RBA’s decision making and extreme commitment to raise rates in the questionable economic climates we've seen previously, mean that nothing should come as a surprise.

And in the event we do see another hike, the already record-breaking damage placed upon households could become even more catastrophic.