Australians are defaulting on their home loans at growing rates as the number of borrowers at risk of mortgage stress peaks at levels not seen since 2008, when the global financial crisis hit.
Key points:
- There are now 1.5 million Australians at risk of mortgage stress
- The number of households falling behind in repayments is also rising
- An expert says mortgage arrears are yet to reach their peak
The new data, which paints a grim picture of Australia’s cost-of-living crisis, comes as Michelle Bullock prepares to give her first speech as incoming governor of the Reserve Bank of Australia.
Borrowers already feeling the pain of dramatic interest rate rises are also nervously watching what the RBA will do when it meets in the first week of September.
This year, hundreds of thousands of households have rolled off historically low interest rates fixed during the pandemic and another 450,000 home loans will expire next year.
Roy Morgan research to be released today reveals 1.5 million, or 29 per cent, of borrowers were at risk of mortgage stress in July 2023 – a number higher than during the 2008 global financial crisis.
And while the percentage of affected people is lower than in 2008, the number of Australians at risk is higher due to growth in the population and the number of people in the mortgage market.
The figures show the number of borrowers battling to pay off loans has steadily risen since the RBA began its aggressive run of interest rate rises in May last year.
Roy Morgan chief executive Michele Levine said the real impacts were felt when people lost their jobs.
“Their income disappears or gets halved if one of the two lose their job,” she said.
“So unemployment is going to be something to keep an eye on [and] cost of living going up is going to be really challenging.
“All of the inflation factors mean less money to go around. There are not any indicators that I can see that suggest mortgage stress is going to disappear or even reduce, they’re all pointing in the wrong direction.”
‘It wouldn’t take much’
Cody Briggs and his partner Monique McHale started building their dream home in Perth’s south-eastern suburbs in 2020.
But construction delays, cost blowouts and the tight rental market forced the couple to buy another home before Monique gave birth to their first child, Oliver.
“It wouldn’t take much to drop us into the red, we’re just running that line right now,” Mr Briggs said.
“Possibly the next repayment, the next stage kicking in or the next interest rate increase.”
The couple are now spending 70 per cent of their income on their home loans, and Monique hasn’t been able to work while caring for their son.
“I am pretty stressed, I try not to think about it,” he said.
“It’s better to be ignorant than face the reality that we might not make the next progress payment, we might end up having to sell this home.”
More households slipping into the red
Over the past year, new data from ratings agency S&P shows the number of households that have fallen a month or more behind in their mortgage repayments has increased in every state and territory — with parts of Victoria, NSW, Tasmania, NT and the outback regions of WA and Queensland feeling most of the pain.
Outback Queensland recorded the worst arrears rate in the country at 3.64 per cent, followed by Tasmania’s south-east (3.33 per cent), Shepparton in northern Victoria (2.68 per cent), WA’s outback (2.7 per cent), Darwin in the NT (2.6 per cent) and Sydney’s south-west (2.49 per cent).
In Victoria, the regional city of Shepparton in the Goulburn Valley fared the worst in the state, but Melbourne’s north-west, encompassing Sunbury, Riddells Creek and Lancefield, was not far behind with a 30-plus day arrears rate of 2.26 per cent.
Melbourne’s west, which includes the cities of Wyndham, Hobsons Bay, Brimbank and Melton, was the third-worst at 1.82 per cent.
In NSW, Sydney’s south-west, stretching from Greendale in the west to Liverpool in the east, recorded the most concerning arrears rate in the state at 2.49 per cent.
Other parts of Sydney including Blacktown, the Blue Mountains, Southern Highlands and Shoalhaven were also feeling the pinch, sitting around 1.8 per cent.
A similar rate of mortgage default was seen in the state’s far west and Orana regions, stretching from Broken Hill in the west to Dubbo in the east, as well as the Riverina region, encompassing Griffith and Wagga Wagga.
Western Australia’s outback, which includes Broome, Karratha, Geraldton and Kalgoorlie, recorded the worst arrears rate in the state with an average of 2.7 per cent, followed by the Wheatbelt at 2.28 per cent.
The major regional centres of Mandurah and Bunbury recorded the second and third worst figures, at 1.96 per cent and 1.82 per cent respectively.
Households in Queensland’s outback, including areas like Mount Isa, Bamaga and Cunnamulla, were also struggling with an arrears rate of 3.64 per cent.
The Mackay-Isaac-Whitsunday and Wide Bay regions recorded the second- and third-highest figures in the Sunshine State, at 1.69 per cent and 1.61 per cent respectively.
Arrears ‘haven’t peaked yet’
S&P Global Ratings analyst Erin Kitson said while the percentage of households missing mortgage repayments was low, it was a lagging indicator.
“We certainly expect arrears to continue to rise and in terms of how long and so forth, ultimately that will depend on where interest rates head and where they finally peak. At this point we expect arrears to continue to increase into the first half of next year,” Ms Kitson said.
“But really importantly when it comes to arrears, the employment story is key. Low unemployment is helping to temper arrears.
“We certainly haven’t seen mortgage arrears peak yet, there are further arrears increases ahead of us.”
As Commonwealth Bank posted a $10.5 billion profit this month, the lender revealed it had reached out to 100,000 customers most at risk of default.
The bank holds 25 per cent of the residential loan book in Australia, which equals about 2 million mortgages.
Australians taking on second jobs
Social worker Gabby Glass has a unique insight into Australia’s cost-of-living crisis.
She’s experiencing mortgage stress while also seeing a growing number of people reaching out for help in her regional town of Castlemaine, north-west of Melbourne.
She’s been forced to take on a second job offering counselling services during the night to make ends meet.
“I would be going backwards if I wasn’t working the two jobs. If something happened to one of my jobs, I’d be going into the red certainly,” Ms Glass said.
The single mother told the ABC she did not have any savings because she had to raise two children on her own after her husband died when her girls were young.
“I don’t have that buffer, which Philip Lowe talks about, and all these people talk about,” she said.
“I think there’s a lot of people out there also, who don’t have this magical buffer that the Reserve Bank thinks we have, and who are working their guts out to keep things going”.
‘A perfect storm’
The National Debt Helpline has recorded an almost 30 per cent increase in the number of calls compared to the same time last year.
Victoria was disproportionately higher, recording a 44 per cent jump while the number of people visiting the helpline’s website has almost doubled over the past year.
Suzanne Long from Vinnies WA said she could not remember a time like this in her 12 years as a financial counsellor.
“I think it’s a perfect storm because everything happened at the one time,” she said.
“There’s the increase in cost of living — everything’s gone up — supermarket prices, petrol, insurances and then capped with increase payments in mortgage repayment.
“[Some people] had some small savings buffer there, but they’ve gone through it now and there’s nothing left. Nobody wants to lose their home.
“They’re highly stressed, we’ve had clients who are suicidal, nobody likes to get on the phone and speak to somebody about the finances, usually it’s the taboo that nobody wants to talk about. They have a sense of shame and they don’t want people to know they’re struggling.”
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