The Current State of Mortgage Stress Among Australian Homeowners

Proptrack’s senior economist Eleanor Creagh recently looked at the current state of mortgage stress among Australian homeowners.

Mortgage stress occurs when households struggle to meet home loan repayments.

However, there’s no official quantitative definition for it.

That said, a recent survey by Finder found that about 35% of Aussie mortgage holders felt stressed about their home loan repayments as of January, a decrease from 41% in June 2023.

Here are her main points.

Australian households with mortgages have faced increased financial pressure due to rising interest rates. The increase in borrowing costs has outpaced income growth, leading to considerable budget adjustments or use of savings to manage mortgage repayments.

Despite the financial strain, there’s little evidence of increased selling due to the inability to pay mortgages.

For instance, official data shows that mortgage arrears remain historically low and below pre-pandemic levels (see image).

This suggests that, while households might feel stressed, most are still managing to make their payments.

Ms Creagh attributes this to strong labour market conditions and low unemployment rates, which have helped many households manage their mortgage obligations.

Job stability and the presence of savings are crucial factors influencing the ability to service mortgages. So those with insecure employment or limited savings may face different challenges.

That said, borrowers facing difficulties are often helped by lenders through loan restructuring, such as extending loan terms or temporarily suspending repayments.

Additionally, the low percentage of loans in negative equity (0.1% according to Reserve Bank of Australia data) offers the option of selling property to repay loans.

So what’s the outlook?

Well, Ms Creagh expects mortgage arrear levels to stay low, assuming unemployment rates don’t rise significantly.

Moreover, she believes interest rates have likely peaked, which will, in turn, provide some relief for households.

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