Hundreds of thousands of Aussies could face mortgage stress in the face of looming interest rate hikes

More than a fifth of Australian mortgage holders are said to be “at risk” of missing out on repayments or otherwise struggling if interest rates continue to rise.

New research this week by Roy Morgan showed 854,000 borrowers were at risk of mortgage distress in the three months to July.

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After two more increases in the cash rate, that number is now estimated at about 942,000 people.

Roy Morgan considers borrowers “at risk” of mortgage stress when their repayments exceed a certain percentage of their household income, which varies by income and spending.

More than a fifth of Australian mortgage holders are said to be “at risk” of missing out on repayments or otherwise struggling if interest rates continue to rise Recognition: JOEL CARRETT/AAPIPICTURE

They are considered “extremely vulnerable” when even the “interest-only” portion of their loan exceeds a certain proportion of household income.

The 854,000 borrowers classified as “at risk” in July include the Reserve Bank’s three rate hikes since May.

During the pandemic, the cash rate was paused at a record low of 0.1 percent.

However, as COVID-related measures, including lockdowns, have been eased, the RBA has resumed adjusting the cash rate.

In May, it was first raised by 0.25 percent before four consecutive increases of 0.5 percent to 2.35 percent.

Economists predict a further increase as global factors, including the war in Ukraine, contribute to higher living costs.

Roy Morgan’s analysis suggests that 1.1 million Australians would be deemed at risk of mortgage distress if the RBA hiked interest rates by 0.5% in both October and November.

That would be an increase of 246,000 since July.

It would also be most of the mortgage holders classified as “at risk” for nearly a decade.

Roy Morgan CEO Michele Levine said 171,000 people were currently listed as “at risk” since lockdown in NSW and Victoria last year.

“More concerning is the surge in mortgageholders classified as ‘extremely vulnerable’, now estimated at 620,000 (14.1 percent) in September 2022 – the highest since May 2019, before anyone had even heard of the coronavirus or COVID-19” said Levin.

“It’s important to remember that interest rates are just one variable that determines whether a mortgage holder is classified as ‘at risk’. The variable that has the biggest impact on whether a borrower falls into the “at risk” category is related to household income — which is directly related to employment.

“These numbers suggest that as long as employment levels remain high, the number of mortgage holders considered ‘at risk’ will rise nowhere near to, and well above, the levels seen during the 2007-08-09 global financial crisis 30 percent of mortgage holders were considered ‘at risk’ – including a peak of 35.6 percent in May 2008.”

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Three of the four big banks expect interest rates to rise by 0.5 percent on Tuesday.

The outlier, the Commonwealth Bank, is forecasting a 0.25 percent rise.

If the majority is correct, the average Australian borrower would be paying about $160 more a month on their repayments.

Monthly repayments would rise another $165 — roughly — if another 0.5 percent increase were made in November.

RBA Gov. Philip Lowe previously said there would be more rate hikes in 2022, but they would not be as severe as in recent months.

“The board expects to continue raising interest rates in the coming months, but it’s not on a preset path,” Lowe said.

“The size and timing of future rate hikes will be guided by incoming data and the board’s view on the inflation and jobs outlook.

“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

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https://7news.com.au/business/housing/hundreds-of-thousands-of-aussies-could-be-made-at-risk-of-mortgage-stress-amid-looming-rate-hikes-c-8404945 Hundreds of thousands of Aussies could face mortgage stress in the face of looming interest rate hikes

James Brien

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