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One in six borrowers facing mortgage stress


Alex Ritchie

Alex Ritchie


The latest Roy Morgan research has found that mortgage stress has increased to 17.3 per cent of borrowers in July. This is an increase of 0.3 per cent over the last 12 months, despite interest rates dropping in this period. 

The standard variable rate (SVR) from the Reserve Bank of Australia (RBA) for July 2017 was 5.25 per cent, down from 5.40 per cent in July 2016. 

According to Roy Morgan Industry Communications Director Norman Morris, the increase in mortgage stress is at the point “where nearly one in six borrowers face a potential problem.”

What is mortgage stress?

Roy Morgan defines mortgage stress as the ability of home borrowers to meet the repayment guidelines currently provided by the major banks, based on the proportion of their household income they are paying on their mortgage.

“At Risk” is based on those paying 15-50 per cent (depending on income) into their loans based on the appropriate SVR reported by the RBA and the amount the respondent initially borrowed.

“Extremely at Risk” is based on those paying 30- 45 per cent (depending on Income) into their home loans based on the SVR set by the RBA on the amount respondents currently owe on their home loan.

There has been an increase in mortgage stress for both those in the “At Risk” and “Extremely at Risk” categories over the last 12 months. 

In the three months to July 2017 alone, the “At Risk” category grew 0.3 percentage points. The “Extremely at Risk” category grew 0.4 percentage points.

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Source: Roy Morgan

Why is mortgage stress increasing?

Roy Morgan has attributed this increase to the percentage increase of median household income of mortgage owners’ comparative to the median amount borrowed and the median amount outstanding. 

Household income had only grown 2 percentage points, compared to the amount borrowed increasing 7.4 percent and the amount outstanding growing 13.1 per cent.

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Source: Roy Morgan
*Percentage change is based on 3 months to July 2017, compared to 3 months to July 2016. 

Roy Morgan Industry Communications Director, Norman Morris, said the research showed “fewer people are taking out home loans and those that do have increased their borrowings, most likely as a result of low interest rate and rising house prices.” 

“With median household incomes among borrowers showing low growth over the last year, they are not paying off their loans as quickly and as a result outstandings are growing faster than household incomes. 

“When rates eventually rise, this is likely lead to an even lower number of borrowers but existing mortgage holders who have borrowed in a low interest rate environment are likely to face increased levels of mortgage stress. 

“The final impact however will also be determined by what happens to household incomes, which are currently showing very modest growth,” warned Mr Morris.

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