More than 1.6 million Australians are facing mortgage-related stress, with the figure up by 88,000 compared to the previous month, new research has revealed.
This means that nearly 30.3 per cent of Australian homeowners with mortgages are facing a battle to make their payments.
The percentage of homeowners in mortgage distress reached an all-time high of 35.6% in mid-2008 during the global financial crisis.
However, over the past 14 years there has been population growth and an increase in mortgage numbers, meaning there are now more Australians at risk of mortgage stress, according to Roy Morgan.
The data paints a bleak picture for Australians trying to keep a roof over their heads.
Compared to May 2022, when the RBA began a cycle of interest rate increases, the number of Australians at risk of property stress has increased by about 795,000.
Interest rates are now at 4.35 percent – the highest since December 2011 – and there are concerns that they could be raised in August.
Meanwhile, more than a million mortgage holders are now considered high risk, well above the long-term average over the past 10 years of 14.5 percent.
Meanwhile, Roy Morgan’s latest unemployment estimate for June shows that more than one in six Australian workers are either unemployed or working part-time, amounting to more than 2.7 million.
Concerns about out-of-control inflation have also mounted.
Monthly inflation figures from the Australian Bureau of Statistics for May 2024 showed the annual inflation rate was 4 per cent – up 0.4 per cent from April 2024 and the highest figure this year.
Roy Morgan Chief Executive Michelle Levine said renewed increases in the cost of living in recent months have pushed the official level of inflation away from the Fed’s preferred target range of 2 to 3 percent.
“In addition, key inflation indicators such as petrol prices remain high – for the first time in history, average retail petrol prices have been above $1.80 per litre for 53 consecutive weeks, a record – over a full year,” she added.
But she added that the third-phase tax cuts would also offset some of the mortgage-related pressures.
“Even if the RBA raised interest rates by 0.25 per cent in both August and September to 4.85 per cent, the level of mortgage stress would fall by about 24,000 to 1.578 million mortgage holders deemed at risk in the three months to September 2024,” she noted.
“The latest mortgage stress figures show that when looking at the data, it is important to realise that interest rates are only one of the variables that determine whether a mortgage holder is considered at risk of mortgage stress.
“The third stage income tax cuts provide significant financial relief, and a boost to the take-home pay, for millions of Australian taxpayers – including many mortgage holders.”
However, high unemployment rates can make things difficult for homeowners.
“The labour market has been strong over the past year – with the latest Roy Morgan estimate showing 673,000 new jobs created compared to last year – and this has provided support to household incomes, helping to ease mortgage stress levels from their peaks in early 2024,” she said.
However, new research also found that nearly a million homeowners may have to take drastic action if interest rates remain high into next year, according to Finder.
It found that 165,000 people will be forced to sell their homes if mortgage rates remain high.
Finder personal finance expert Sarah Megginson said Australians were expecting interest rates to be cut but instead found themselves in a bind.
“Many homeowners are in dire financial straits, facing the prospect of having to sell their homes, or turning to loved ones for support in paying their bills,” she said.
“With interest rates expected to continue rising through next year — and some even calling for a hike in August — mortgage holders may be waiting longer than they expected for this pressure to ease.”
Research has shown that one in ten homeowners will have to switch to an interest-only mortgage if rates remain high, while 4% will need to borrow money to make mortgage payments.
Another 3% will have to rent a room in their home, and 2% will have to request a grace period on payments.
The June consumer price index, due later this month, could make or break the case for an August rate hike, said David Passanisi, chief economist at BetaShares.
“My base case is that CPI will get close to being bad enough to put serious pressure on the RBA to raise interest rates next month,” he warned.
“My expectation is that annual growth in both headline and moderate inflation will be 3.9% in the June quarter, slightly above the RBA’s latest forecast of 3.8%. But if either or both annual inflation rates rise to 4% or above, the RBA will be under pressure to act.
“This is because higher than expected CPI would make it difficult for the RBA to continue to believe that inflation will fall to its 2-3 per cent target range by the end of 2025 without further monetary tightening.
“Then the RBA will face the dilemma of either having to raise interest rates – which would put economic growth at risk – or pushing back the timing of its inflation forecasts further – which would further damage its anti-inflation credibility.”
However, some economists expect interest rates to be cut in November.
KPMG chief economist Dr Brendan Ryan has warned that the Australian economy is “a heartbeat” away from recession, with growth at its weakest in more than two decades.
He said, “Families are still suffering from the high cost of living in general, which can be seen in the decline in the household savings rate in the first half of 2024.”
“This is due to total disposable income lagging behind the rise in consumption costs, although commodity prices will start to decline in line with the decline in domestic demand.”
He added that unemployment rates will also continue to rise and expected interest rates to be cut in the first quarter of 2025.
