Mortgage stress top of mind as RBA raises interest rate, yet again

New research from Roy Morgan shows that an estimated 1.35 million mortgage holders (27.1%) were 'At Risk' of 'mortgage stress' in the three months to March 2023. 

In Roy Morgan's series on at-risk home loans, this is the highest number recorded since September 2008, 1.37 million at that time. 

Not since late 2011 has the proportion of mortgage holders considered 'At Risk' of mortgage stress been so high and the number of Aussies in this category has increased by 590,000 over the last year, says Roy Morgan.

It's worth noting that rapid interest rate rises are a likely contributing factor in this scenario. So the timeframe of Roy Morgan's report is significant because it included a 0.25% interest rate increase that took the official interest rate to 3.6% in early March.

Now with the cash rate moving up yet again in May to 3.85%, mortgage stress is likely to be on the minds of more borrowers.

Suitably, Roy Morgan further separates those home loans at extreme risk. For example, the number of mortgage holders considered 'Extremely At Risk' has increased to 835,000 (17.3%), which is significantly above the long-term average over the last 15 years of 660,000 (15.9%). 

Rate rises and property prices

While there's been a level of stress around mortgage repayments specifically, the Reserve Bank's ongoing rate hike strategy has also impacted property market activity and therefore prices, seeing them drop by more than 8% from early in 2022 through to early 2023. This has subsequently hurt existing property owners by lowering the equity they have in their homes, while their repayments typically spike.

Recent Mozo research explored this issue by analysing those borrowers stuck with a bad (see overly expensive) home loan. That report showed that 75% of homeowners in Australia are at risk of becoming a "home loan hostage" - when the homeowner can’t easily refinance to ‘escape’ their current loan. In this situation, homeowners may not have enough income or equity built up to meet the serviceability requirements of a new home loan, so lenders see them as a red flag.

Though lower property values negatively impact many, it should be said that they have broadly allowed some first-time or would-be buyers a window into the market.

This window of opportunity is only open to some however, because higher interest rates typically make home loans more expensive. It's a complicated mix of factors at play to be sure, but it doesn't have to be an impossible task.

A focal point for buyers of all kinds should be home loan comparison rates, which Mozo can help with. You can start comparing some of the best home loan rates on the market below, giving you a foot in the door on your next property purchase.