‘Mortgage stress’ is already a danger for one in five mortgage holders as ‘loan holidays’ are about to end
Source: Roy Morgan Single Source (Australia), average interviews per 3 month period from April 2007 to November 2020, n=2,673.
Base: Australians aged 14+ with owner-occupied mortgage.
New research from Roy Morgan shows around 783,000 mortgage holders (20.0%) were at risk of ‘mortgage stress’ in the three months to November 2020. This period encompassed the end of Victoria’s long second lockdown , but the past few months have taught us that short-lived border closures and lockdowns appear to be with us for some time to come.
This figure is unchanged from a year earlier at the end of 2019, although it is up from record lows in the middle of last year, when only 668,000 mortgage holders were considered “at risk”. risk” between July and September 2020. The low rate of “sub-prime” mortgages in 2020 came during the period of maximum support provided to the economy by the federal government as well as the measures taken by banks and financial institutions to support borrowers by granting borrowers in financial difficulty mortgage “holidays”.
As we head into 2021, financial support from governments, banks and financial institutions is being phased out with the end of mortgage holidays and wage subsidy programs such as JobKeeper expected to end by the end of the month. next.
The withdrawal of this support places increased importance on monitoring the level of mortgage stress in 2021, as it can provide an early indicator of potential financial problems that are approaching in the near future.
Mortgage stress – Owner-occupied mortgage holders
Source: Roy Morgan Single Source (Australia), average interviews per 3 month period from April 2007 to November 2020, n=2,673. Base: Australians aged 14 and over with owner-occupied mortgage.
Above all, Roy Morgan has been monitoring the impact of COVID-19 on the employment situation of Australians. In May 2020, 11.2 million Australian workers (72%) reported a change in their employment status due to COVID-19, and in November 2020 there were still 10.2 million reporting that their employment status job had changed – see more details here.
Many of these job changes are negative and include having ‘reduced working hours’, ‘not having work offered’, ‘have been suspended for a while’, ‘activity has slowed down or stopped completely’, ‘reduced pay for the same number of hours work’ or be ‘dismissed’.
For Australians with negative job changes due to COVID-19, mortgage stress is significantly higher with over a quarter, 25.7%, now in “mortgage stress”, or over 5% of more than for all mortgage holders. In addition, almost one in six people, or 16.8%, are “extremely at risk”.
Mortgage risk for those with negative job changes due to COVID-19
Source: Roy Morgan Single Source (Australia), Sept.-Nov. 2020, n=1,934. Base: Australians aged 14 and over with owner-occupied mortgage.
How are mortgage holders considered “at risk” or “extremely at risk” determined?
Roy Morgan views the risk of “mortgage stress” among mortgage holders in two ways:
Mortgage holders are considered “at risk”1 whether their mortgage payments are above a certain percentage of household income – based on income and expenses.
Mortgage holders are considered ‘extremely at risk’2 if even “interest alone” exceeds a certain proportion of household income.
1 in 5 mortgage holders were ‘at risk’ in November, just up from record lows in mid-2020
In the three months to November 2020, 20.0% of mortgage holders were “at risk” (783,000), which is unchanged from the previous year, but up from the 668,000 registered in the during the three months preceding September 2020.
Of these “at risk”, more than half, 454,000 or 12.4% of all mortgage holders, were considered “extremely at risk”. While still low by recent years’ levels, this is an increase from the record low of 384,000 recorded in the three months to October 2020.
These are the latest findings from Roy Morgan’s single-source survey, based on in-depth interviews with 50,000 Australians each year, including more than 10,000 owner-occupied mortgage holders.
Michele Levine, managing director of Roy Morgan, says mortgage stress levels in Australia have plunged in 2020, but the withdrawal of support from the federal government and banking and financial institutions this year is a test for the property sector:
‘The latest data from Roy Morgan on the Australian property market shows that mortgage stress continued to reach record lows in the three months to November 2020. Risk’ – down from late 2019, and well below the level at the start of the COVID-19 pandemic (559,000).
“However, as we head into 2021, the significant support provided by the federal government as well as banking and financial institutions is being phased out. The JobKeeper wage subsidy and JobSeeker COVID-19 supplement are due to expire at the end of March and the loans” granted to mortgage holders in financial difficulty are also being phased out.
“According to the Australian Prudential Regulation Authority (APRA), banks deferred payments on housing loans worth $43 billion at the end of December 2020. This represents a significant drop from the value of loans deferred in August 2020 of $160 billion and represents 2.4% of all home loans.
“APRA figures show that those holding loans with a loan-to-value ratio above 90% were much more likely to accept a repayment deferral. These loans represent 6% of all housing loans, but 10% of deferred loans.
“Due to significant government support and deferred payments on home loans from banks and other financial institutions, the impact of COVID-19 has yet to be fully felt, but the trend in the Roy Morgan data from September to November warns us that there will be significant pressures appearing when support ends.
“A special Roy Morgan survey of the impact of COVID-19 on employment showed that 11.2 million Australians who were working (72%) in May 2020 had experienced a change in their employment due to the pandemic , and in November 2020 there were still 10.2 million Australians working. report a change. Most of these were negative changes such as ‘reducing working hours’, ‘being laid off for a while’, ‘not being offered a job’ or being ‘fired’ – or some combination of the items above.
“Many years of research on mortgage stress have shown that the primary driver of increased mortgage stress is the reduction in income caused by the loss of a job, which results in an immediate jump into an ‘at risk’ category. More than two in three mortgages are dependent on more than one income and our analysis shows that the loss of even the lower of these two incomes results in an immediate four-fold increase in the likelihood of these mortgage holders becoming “at risk” or “extremely at risk”. .
“The end of the JobKeeper wage subsidy later next month will put further pressure on up to 1.5 million jobs that were dependent on payment in the December 2020 quarter according to the Australian Treasury. This is a huge pool of employees who could face a substantial drop in income over the next few months, which should lead to an increase in the number of mortgage holders falling into a risky category.
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1“At Risk” is based on those who pay more than a certain proportion of their after-tax household income (25% to 45% depending on income and expenses) in their home loan, based on the appropriate standard variable rate reported by the RBA and the amount they originally borrowed.
2“Extremely at risk” is also based on those who pay more than a certain proportion of their after-tax household income into their home loan, based on the standard floating rate set by the RBA and the amount currently outstanding on their home loan. .