Mortgage stress "near record lows"

By Madison Utley | 26 Oct 2020

New research from Roy Morgan has revealed the current number of ‘at risk’ Australian mortgage holders is near the record lows recorded a year ago, before the pandemic began.

In the three months to August 2020, an estimated 751,000 mortgage holders (20.2%) were ‘at risk’ of mortgage stress, slightly up from the 723,000 mortgage holders considered at risk in the three months to October 2019.

Roy Morgan considers mortgage holders ‘at risk’ if their mortgage repayments are greater than a certain percentage of household income and ‘extremely at risk’ if the interest only is over a certain proportion of household income.

At the end of August, as most of Australia – Victoria excepted – was emerging from lockdown, just 12.5% of all mortgage holders were considered ‘extremely at risk’ – also near the record lows reported a year ago.

However, while the data seems promising, Roy Morgan CEO Michele Levine provided context which helped to temper the robust result. 

“These figures are somewhat deceptive as they rely on an unprecedented level of support provided to the economy,” she said.

“The Federal Government has subsidised workers with the $1,500 a fortnight JobKeeper wage subsidy, the almost doubled JobSeeker payment of over $1,100, and allowed businesses to trade while insolvent to keep people employed.”

Levine also expressed concern over the $160bn in deferred payments on housing loans.

“APRA figures show that those holding loans with a loan-to-value ratio above 90% were significantly more likely to take up a repayment deferral. These loans make up 5% of all housing loans, but 9% of deferred loans, and are for borrowers more likely to fall into an ‘At Risk’ category if they were to become unemployed or fall upon hard times,” she explained.

Given the extent to which the governmental support may be falsely propping figures up, Roy Morgan has also tracked the impact COVID-19 has had on the employment status of Australians to get a clearer idea of how mortgage holders may fare into the future.

“Over the many years of our research into mortgage stress, the data shows clearly the loss of a job is the biggest driver of increased mortgage stress as the reduction in income causes an immediate jump into a ‘risk’ category,” Levine said.

In July 2020, 10.4 million Australians reported a change to their employment circumstances due to COVID-19, the majority of which were negative such as having work hours reduced, being stood down for a period of time, not having any work offered or being made redundant; over a quarter of this group (26.7%) is now in ‘mortgage stress’ – six percentage points higher than the average among all mortgage holders. Further, 16.8% are currently considered ‘extremely at risk’.

“Over two in three mortgages rely on more than one income and our analysis shows losing even the lower of these two incomes causes an immediate quadrupling of those mortgage holders considered ‘at risk’ or ‘extremely at risk’," Levine added. 

“JobKeeper has already been reduced in early October 2020 and is set to end entirely by April 21, while the mortgage deferrals offered by banks to customers in financial distress are set to run out at the same time. One of the biggest tasks for banks during the present period is to determine which customers will be able to return to paying their mortgage in the period ahead and which customers will not have that capacity when the deferrals end early next year," she concluded.

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