Login
ISCOVER
Mortgage stress is on the rise as the extended wait for interest rate cuts impacts borrowers.
The risk of mortgage stress rose in the three months to November 2024, as the Reserve Bank of Australia’s (RBA) continued to leave the cash rate unchanged at 4.35 per cent - a 12-year high - according to research firm Roy Morgan.
To continue reading the rest of this article, please log in.
Looking for more benefits? Become a Premium Member.
Create free account to get unlimited news articles and more!
Looking for more benefits? Become a Premium Member.
The findings come in the latest Single Source Survey, based on in-depth interviews conducted in the three months to November 2024 (with over 60,000 Australians each year including over 10,000 owner-occupied mortgage-holders).
According to the data, 26.8 per cent of mortgage holders are now deemed to be 'at risk' of mortgage stress, up 0.5 percentage points compared to the three months to October.
This means that more than a quarter of borrowers will be paying between 25-45 per cent of their after-tax household income (depending on income and spending) into their home loan. The measure is based on the appropriate Standard Variable Rate reported by the RBA and the amount they initially borrowed.
There were 931,000 or 16.9 per cent of mortgage holders considered 'extremely at risk', significantly above the long-term average over the last 10 years of 14.6 per cent.
While Roy Morgan notes that mortgage stress rose in the quarter to November, it added that it was 3.5 per cent lower than the June figures. This may be attributed to the introduction of the Stage 3 tax cuts, which came into effect in July 2024).
How has mortgage stress been faring this cycle and what will change with rate cuts?
The number of Australians at risk of mortgage stress has risen by 707,000 since May 2022, when the RBA began a cycle of interest rate increases.
However, the 26.8 per cent of mortgage holders at risk of mortgage stress remained comfortably below the record high of 35.6 per cent reached in mid-2008, during the Global Financial Crisis.
Due to the decline in inflation in recent months, Roy Morgan said it had modelled the impact of a potential 0.25 per cent interest rate cut in February 2025.
That would put the number of at-risk mortgage holders at 1.5 million, 26,000 lower than in November.
Michele Levine, Roy Morgan CEO, said easing inflation was encouraging for interest rate relief.
“The rapid decline in inflation over the last year has led to hope that the RBA will reduce interest rates in the months ahead,” she said.
“However, the RBA has stated that they are keeping an eye on so-called ‘core inflation’, also known as the ‘trimmed mean’. The latest ‘trimmed mean’ estimate for inflation for the year to November 2024 was still above the desired target range at 3.2 per cent.
“Nevertheless, the decline in inflation pressures is evident and the RBA’s next move in interest rates is likely to be down.”
Levine said that factors aside from the cash rate also influenced mortgage stress.
“Finally, it is important to appreciate that interest rates are only one of the variables that determines whether a mortgage holder is considered ‘at risk’ – the largest impact on whether a borrower falls into the ‘at risk’ category is related to household income – which is directly related to employment,” Levine said.
The Roy Morgan CEO noted that the employment market had been strong over the last two years, which “provided support to household incomes which have helped to moderate levels of mortgage stress over the last year”.
Much like Roy Morgan’s research, new figures from Westpac-Melbourne Institute showed that consumer sentiment towards housing improved in January, driven by growing optimism about potential mortgage rate cuts.
The consumer mood tied to home buying improved across all state and regional breakdowns while the same trend occurred for all age groups and for renters and home owners with a mortgage.
When will RBA lower rates?
Official interest rates stand at 4.35 per cent, the highest they have been since December 2011, over a decade ago.
However, there are a growing number of economic commentators and lenders predicting cuts when the RBA board next meets on 17–18 February.
Last week, Australia and New Zealand Bank (ANZ) revised its cash rate call, bringing forward the first rate cut to next month from May.
The big four bank is expecting a rate cut of 25 bps.
ANZ now aligns with CBA in its cash rate reduction timings. CBA also said earlier last week that the November inflation figures were “very good” (it had forecast a 2.6 per cent outturn) and was “very positive news for the Q4 24 Australian inflation story”.
CBA now expects trimmed mean CPI to be 0.5 per cent over Q4 and 3.2 per cent over the year.
NAB and Westpac – which are both backing a May cash rate cut – have not yet updated their cash rate forecasts since the CPI figures were released.
As of 14 January, markets had priced in a 73 per cent chance of a February cut.
[Related: ANZ brings forward rate cut call to February]
JOIN THE DISCUSSION