Mortgage stress is almost at GFC levels: Here’s why it could get worse
29.2% of mortgage holders are at risk of mortgage stress in the last 3 months.
Rising interest rates and a cost of living crisis are taking a toll on Australian borrowers. Roy Morgan figures out this week show that almost 1.5 million mortgage holders in the last 3 months are "at risk" of mortgage stress.
These mortgage stress figures are very similar to data from Finder's Consumer Sentiment Tracker.
40% of Australian borrowers with mortgages, equivalent to 1.32 million households, told Finder they're struggling with home loan repayments this month.
What is mortgage stress?
The basic definition of mortgage stress is when a borrower is spending more than 30% of their after-tax income on mortgage repayments.
More sophisticated analyses use higher or lower percentages depending on income levels.
If you find yourself cutting costs each month just to make sure you have enough for the mortgage, you're likely in mortgage stress.
Why is mortgage stress on the rise?
Inflation has risen rapidly since 2022, which means everyone is paying more for everyday expenses like food, fuel, and energy bills. In response, the Reserve Bank began a cycle of interest rate rises, which makes borrowing money more expensive.
In April 2022 it was possible to have a home loan with an interest rate under 2%. Today, you won't find anything under 5%.
This has added more than a thousand dollars a month to the average borrower's repayments.
The situation could get worse before it gets better
Many borrowers are close to breaking point. But with the RBA likely to raise interest rates again this year to drive inflation further down, the situation could get even worse before it gets better.
Today the Australian Securities and Investments Commission said that it is "seeing evidence that an increasing number of customers are experiencing financial distress and difficulty due to cost-of-living pressures."
ASIC urged lenders to ensure they have hardship assistance schemes in place to help borrowers.
Borrowers who are struggling need to identify ways they can cut back on their expenses. Some of the biggest savings can come from your biggest debt.
Refinancing your home loan to a cheaper deal with a new lender can shave potentially hundreds of dollars a month off your mortgage.
Borrowers should also compare their energy plans and look at their insurance policies again to see if they can save money by switching.
- You can call the National Debt Helpline on 1800 007 007 for free financial counselling.
And the upside to rising rates is savers can now put their money to work in a high interest account or a term deposit, with rates as high as 5%.