Over a million Aussie homeowners at risk of facing mortgage stress, finds Roy Morgan

New research from Roy Morgan reveals that if the Reserve Bank of Australia hikes rates again in December, it could put a quarter (25.1%) of home loan borrowers at risk of mortgage stress.

By January 2023, over 1.1 million Australian households may have to put anywhere between 25% to 40% of their after-tax incomes towards their mortgage repayments, finds Roy Morgan.

More worryingly, nearly 14.4% of mortgage borrowers are considered ‘Extremely At Risk’ as of October 2022 – the highest level since pre-pandemic. 

The research seemingly corroborates what has been felt at the domestic level since official interest rates first began to climb in May 2022. 

Property prices have plummeted in a chillier housing market, and even the RBA governor has apologised for making misleading and incorrect predictions about the path of rate hikes. 

But with inflation at a thirty-year high, the RBA has prioritised tackling price growth over a decline in real wages – at the expense of homeowners. Rising interest rates may therefore threaten to push more borrowers into the mortgage trap, which has the worrying potential to spark a recession and undo all the RBA’s efforts. It’s a risky gamble.

But does a surge in at-risk mortgage holders mean imminent doom? Not necessarily, explains Roy Morgan chief executive, Michele Levine.

Levine points to employment as a more critical bellwether of distress, since the loss of income hurts far more than rising interest rates. So long as employment levels remain strong, she says, we likely won’t face the spiral of at-risk holdings and mortgage defaults that defined the Global Financial Crisis in 2007 - 2009. 

“The latest Roy Morgan employment estimates show a near-record 13.5 million Australians were employed in October 2022,” continues Levine, up from even pre-pandemic levels, so there is room for optimism.

However, Roy Morgan admits its mortgage risk figures are ‘conservative’, and unemployment has already shown tiny upticks since October.

“Other influences such as increasing inflation, interest rates, and supply chain challenges caused by extreme weather events are set to be key factors driving employment outcomes during the upcoming year,” concludes Levine. 

In the meantime, it falls to homeowners to manage their repayments and the RBA to chart the best path forward.

Why does the RBA do what they do? Learn more in our monetary policy guide. Compare home loans on offer below.