1 in 4 could face financial stress due to mortgage hikes - InterestRate.co.uk
financial stress

1 in 4 could face financial stress due to mortgage hikes

This week, mortgage holders across Australia face more misery as the nation faces yet another bumper interest rate hike. According to reports, this could see one in four mortgage borrowers facing financial stress due to these hikes.

Data shows that the spate of previous hikes has left 942,000 Australians facing mortgage stress as the Reserve Bank of Australia battles to bring inflation back under control. Another massive rate hike will mean that a quarter of Australian borrowers could find themselves in this situation as they deal with the worst financial hit in nearly a decade.

According to data from Roy Morgan, just under 21% of mortgage holders are currently facing mortgage stress. Many have struggled due to the official cash rate rising from a record low of 0.1% to 2.35%. The number of mortgage holders at risk is at its highest since May 2019.

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Mortgage stress

Mortgage stress on the rise

According to Michele Levine, CEO at Roy Morgan, mortgage stress has increased this year. However, she said that current mortgage stress levels were actually below long-term averages for September.

Levine said: “Official interest rates are at 2.35 percent the highest they have been for over seven years since early 2015. Even so, with just over one in five mortgage holders considered at risk in September 2022 at 20.8 percent, the level of mortgage stress is still below the long-term average over the last 15 years of 22.7 percent of mortgage holders considered at risk since October 2007.”

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She added: “Looking forward, RBA Governor Philip Lowe has stated there will be further interest rate increases to come in the next few months.”

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There are predictions that the interest rate will rise again by 0.5% this month, and another 0.5% hike could follow in November. According to research, this will leave 1.1 million people with mortgages in financial stress, and it would mean the highest level of mortgage stress since July 2013.

According to Roy Morgan, mortgage stress is defined by the level of income that goes toward mortgage repayments. Those with repayments of greater than 25% and 45% of household income fall into this category. Concerns were also expressed about mortgage holders who are considered extremely high-risk.

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Levine said: “Of more concern is the rise in those mortgage holders considered extremely at risk, now estimated at 620,000 in September 2022 – the highest since May 2019, before anyone had even heard of the coronavirus or Covid-19.”