Over 1.6 million households struggling to afford mortgage payments.

New research has revealed that over 1.6 million homeowners are facing potential mortgage stress. This information, gathered by leading researcher Roy Morgan, shows that nearly 30% of mortgage holders were at risk of payment stress in the three months leading up to August 2024. While this number may seem daunting, it does represent a slight decrease from the previous month's figures, thanks in part to the government's implementation of stage three tax cuts.

The decrease in mortgage stress is expected to continue in the upcoming months, but much of it depends on the decision made by the Reserve Bank of Australia regarding interest rates. If they choose not to raise them, the number of at-risk mortgage holders is likely to continue to decline. However, this was not always the case. In fact, back in 2008, a record high of 35.6% of mortgage holders were facing payment stress.

Since May 2022, when the RBA began raising interest rates, the number of Australians considered at risk of mortgage stress has increased by a staggering 852,000. Currently, official interest rates are at 4.35%, the highest they have been in over a decade. And while the number of at-risk mortgage holders may be decreasing, there are still over a million who fall into this category, far above the long-term average of 14.5% over the last 10 years.

Despite the recent decrease in mortgage stress, Roy Morgan is warning of the potential impact of future rate increases. CEO Michele Levine explains that factors such as inflation, which is currently above the RBA's target range, and high petrol prices could lead to further rate increases in the coming months. In fact, they have modeled potential increases of 0.25% later this week and another 0.25% in early November, which would bring interest rates to 4.85%.

If these increases were to occur, the number of mortgages at risk of stress would reach new record highs in the months of September, October, and November. According to Roy Morgan's projections, this would result in an additional 2000 households facing mortgage stress in September, followed by 19,000 more in October. This would bring the total number of at-risk households to 1.712 million, or 30.5% of all mortgage holders.

However, it's important to note that interest rates are not the only factor that determines whether a borrower is considered at risk of mortgage stress. Household income, which is closely tied to employment, also plays a significant role. Fortunately, the employment market has been strong in the past year, providing support to household incomes and helping to moderate levels of mortgage stress. As always, it's important to stay informed and be prepared for any potential changes in the market.

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