Mortgage stress continues to decline as borrowers enter COVID-normal era

Shot of Australian houses.

Despite a lengthy lockdown period across parts of Australia, rates of mortgage stress continue to decline, according to research from Roy Morgan.

In the three months to September 2021, during which NSW, Victoria and the ACT all experienced lockdowns, Roy Morgan found that 584,000 mortgage holders (15.8 per cent) were considered ‘at risk.’

This compares favourably to one year ago, when Victoria’s second lockdown pushed the number of mortgage holders in the at risk category to 668,000 (18.3 per cent). 

The number of struggling mortgage holders peaked in the three months to January 2021 at more than 800,000 and has been steadily declining ever since. 

The report authors credit this to a combination of low interest rates, strong employment growth, and extensive support from Government and banks, including home loan deferrals and reduced payment arrangements offered by many lenders.

Interestingly, the report notes that the number of mortgage holders under pressure today is less than half what it was during the Global Financial Crisis in 2008 (35.6 per cent).

Mounting home loan debts

While there are fewer signs that borrowers were struggling throughout the latest batch of lockdowns, there is still a worryingly high number of borrowers considered ‘extremely at risk.’

Borrowers fall into this category if even interest only repayments on their loan would exceed a certain percentage of their household income.

“Of the mortgage holders considered ‘At Risk’ in the three months to September 2021 (584,000), almost two-thirds, 357,000 or 10.3 per cent of all mortgage holders, were considered ‘Extremely at Risk,’” the report said.

However, the report notes this number is down from 388,000 (11.3 per cent) over the same period last year and much lower than the 526,000 borrowers (13.7 per cent) who were considered extremely at risk in the three months to January 2021.

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Chief executive at Roy Morgan, Michele Levine said the transition to a ‘COVID-normal’ era could be a bumpy one, as borrowers will have to cope with fewer support measures from government and banks along with the prospect of rising mortgage rates.

“Although the RBA suggests there is no immediate prospect of raising the official interest rate many economic commentators are suggesting this will change in 2022 as inflation starts to rise,” she said.

“If Australian inflation does increase substantially that will put upward pressure on interest rates that will in turn lead to a higher level of ‘mortgage stress’ than we are currently seeing.”

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