Next round of expected mortgage hikes to put 1.2 million in “stress”
Mortgage stress has jumped to its highest level in 10 years as economists tip even worse news for borrowers to come.
Two more interest rate hikes will create high levels of mortgage stress
Westpac today said it now expects the Reserve Bank’s official cash rate would rise to 3.85 per cent by May, an increase from its previous peak of 3.7 per cent.
It now forecasts the first cut in rates would not occur until the March quarter of 2024.
But the Queensland Investment Corporation maintains a peak cash rate of 3.6 per cent following an increase in February and another in March, both of 0.25 per cent. It then expected a pause for the rest of the year.
The cash rate is a benchmark for home loan interest rates. It is effectively the rate for overnight loans between banks and lenders put their own margins above that rate.
Roy Morgan Research said its data showed an estimated 1.1 million mortgage holders, or almost 24 per cent of the total, were at risk of mortgage stress after eight interest rate rises last year that lifted mortgages into the 5 per cent range, although some of the cheaper loans are below that level.
The next meeting of the RBA to determine interest rates is on February 7.
QIC chief economist Dr Matthew Peter said the RBA was treading a fine line, but inflation pressures were too broad, and across most categories, to allow the RBA to stop increasing rates.
Roy Morgan that despite the increase in mortgage stress last year the levels were still well below those in 2009, during the global financial crisis, when the proportion of people in stress was 35.6 per cent or 1.45 million people.
“The number of mortgage holders considered extremely at risk has now increased to 666,000, or 15 per cent, in the three months to December 2022, which is now in line with the long-term average over the last 15 years of 659,000 or 15.9 per cent,” Roy Morgan said.
It modelled the impact of another two rate hikes in February and March and found the number of mortgage holders in stress would rise to 1.2 million, an increase of 213,000.
“The greatest impact on an individual, or a household’s, ability to pay their mortgage is not interest rates. It’s if they lose their job or main source of income,” Roy Morgan said.
It defines “at risk” as household’s whose mortgage repayments were above a certain level of household income (25 to 45 per cent, depending on income and spending).
It said as long as employment remains strong, the number of people in mortgage stress should not reach the levels of the GFC.
