Low rates fail to halt mortgage stress

by Miklos Bolza03 Oct 2017
Mortgage stress is on the rise in more households across Australia despite a fall in interest rates, new research from Roy Morgan has found.

A survey of more than 10,000 owner occupier mortgage holders has shown that mortgage stress increased to 17.3% of borrowers in July, equating to an annual rise of 0.3 percentage points.

At the same time, the standard variable rate measured by the Reserve Bank of Australia (RBA) averaged 5.25% in the three months ending July 2017, down from the 5.40% recorded in the same time period a year earlier.

Between these two yearly periods, the number of mortgage holders deemed to be ‘at risk’ has risen from 17.0% to 17.3% while those ‘extremely at risk’ increased from 12.4% to 12.8%.

Roy Morgan found the main reason for these trends is that household incomes have not kept pace with loan volumes. Over the past year, the median household income only increased by 2.0%. In contrast, median amount borrowed increased by 7.4% and median amount outstanding rose by 13.1%.

“It appears from this research that fewer people are taking out home loans and those that do have increased their borrowings, most likely as a result of low interest rates and rising house prices,” Roy Morgan industry communications director Norman Morris said.

“With median household incomes among borrowers showing low growth over the last year, they are not paying off their loans as quickly and as a result [loans outstanding] are growing faster than household incomes.”

The result is that one in six borrowers face a potential problem, he said.

“When rates eventually rise, this is likely lead to an even lower number of borrowers but existing mortgage holders who have borrowed in a low interest rate environment are likely to face increased levels of mortgage stress. The final impact however will also be determined by what happens to household incomes, which are currently showing very modest growth.”

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