For the record as Australia entered shutdown in March, ‘Mortgage Stress’ was close to a record low
New research from Roy Morgan shows an estimated 828,000 mortgage holders (18.2%) were in ‘mortgage stress’ as Australia entered shutdown in March. This figure is determined using a formula that takes into account household income, costs, and mortgage repayments.
This is a significant improvement on those considered to be in mortgage stress 12 months ago and is the second-lowest level of mortgage stress in over a decade.
The strong employment market leading up to the COVID-19 related shutdown in mid-March had kept incomes strong while at the same time the decline in interest rates to record lows over the past year has reduced mortgage repayments for many mortgage holders.
A large concern for Australia’s banks will be the impact of COVID-19 on the employment market. Over 2-in-3 mortgages rely on more than one income and the mortgage risk is typically very low for these mortgages.
The biggest driver of increased mortgage stress is a sudden drop in income – most often caused by the loss of a job and analysis shows that the impact of the loss of one income quadruples the level of risk for these mortgage holders. Even a reduction in work caused by being stood down, or cuts to work hours, can have an effect.
A special survey undertaken by Roy Morgan shows that 10.5 million Australians have already reported a change to their employment status caused by COVID-19. These impacts include having work hours reduced, being stood down, not having any work offered, being made redundant or having pay reduced for working the same number of hours – all of which clearly have a negative impact on income.
There are two ways Roy Morgan looks at mortgage holders considered to be in ‘mortgage stress’.
Mortgage holders are considered ‘At Risk’1 if their loan repayments to pay off their mortgage are greater than a certain percentage of household income – depending on income and spending.
There are an additional subset of mortgage holders that are considered ‘Extremely at Risk’2 if even the ‘interest only’ is over a certain proportion of household income.
‘At Risk’ near record low but ‘Extremely at Risk’ mortgage holders on the rise since October
The proportion of mortgage holders classified as ‘At Risk’, or ‘Extremely at Risk’, is down on a year ago. However, those classified as ‘Extremely at Risk’ have increased after hitting a low in October.
In the three months to March 2020, 18.2% of mortgage holders were ‘At Risk’ (828,000), which is down from 21.5% (903,000) in March 2019. Over the same period those ‘Extremely at Risk’ also decreased from 14.5% (594,000) to 12.6% (559,000), a drop of 35,000. However, the number ‘Extremely at Risk’ hit a low of only 425,000 (10.7%) in October, following an RBA interest rate cut, and has since increased.
These are the latest findings from Roy Morgan’s Single Source Survey, based on in-depth interviews conducted with 50,000 Australians each year including over 10,000 owner-occupied mortgage-holders.
Michele Levine, Chief Executive, Roy Morgan says although COVID-19 has caused significant economic dislocation, the impact on the property market may not be as dramatic:
“Mortgage stress was near record lows in March as Australia went into shutdown to halt the spread of the COVID-19 coronavirus. While it represents nearly one-fifth of mortgage-holders, the figure of 18.2% in ‘mortgage stress’ is actually down 3.3ppts on a year ago, and close to its lowest level in over a decade.
“However, the impact of COVID-19 is set to have a severe impact on the ability of many to repay their mortgages as Australians lose their jobs or have their work hours cut. A special survey by Roy Morgan shows 10.5 million working Australians have had their employment situation changed by COVID-19 with millions of Australians having their work hours reduced, being stood down, not having any work offered, having their pay reduced for working the same number of hours or being made redundant – or a combination of the above.
“The loss of a job is the biggest driver of increased mortgage stress as the reduction in income causes an immediate jump into a ‘risk’ category. Over two-in-three mortgages rely on more than one income and our analysis shows losing even the lower of these two incomes causes an immediate quadrupling of those mortgage holders considered ‘At Risk’ or ‘Extremely at Risk’.
“Australian banks have been quick to recognise this risk and have offered deferrals on mortgage repayments of up to six months for mortgage-holders facing financial hardship. In combination with the Federal Government’s $130 billion JobKeeper wage subsidy these measures will provide support for mortgage-holders and the housing market in the short- to medium-term.
“However, income cuts and rising unemployment in the aftermath of the COVID-19 crisis are likely to lead to an increase in mortgage stress even after Australia emerges from the pandemic.”
To understand more about mortgages in the full context of household finances and the uncertainties caused by the COVID-19 coronavirus, ask Roy Morgan.
Mortgage Stress – Owner-Occupied Mortgage-Holders
Source: Roy Morgan Single Source (Australia), average interviews per 3 month period April 2007 – March 2020, n=2,712. Base: Australians 14+ with owner occupied home loan.
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1"At Risk" is based on those paying more than a certain proportion of their after-tax household income (25% to 45% depending on income and spending) into their home loan, based on the appropriate Standard Variable Rate reported by the RBA and the amount they initially borrowed.
2"Extremely at Risk" is also based on those paying more than a certain proportion of their after-tax household income into their home loan, based on the Standard Variable Rate set by the RBA and the amount now outstanding on their home loan.
Margin of Error
The margin of error to be allowed for in any estimate depends mainly on the number of interviews on which it is based. Margin of error gives indications of the likely range within which estimates would be 95% likely to fall, expressed as the number of percentage points above or below the actual estimate. Allowance for design effects (such as stratification and weighting) should be made as appropriate.
| Sample Size | Percentage Estimate |
| 40% – 60% | 25% or 75% | 10% or 90% | 5% or 95% | |
| 1,000 | ±3.0 | ±2.7 | ±1.9 | ±1.3 |
| 5,000 | ±1.4 | ±1.2 | ±0.8 | ±0.6 |
| 7,500 | ±1.1 | ±1.0 | ±0.7 | ±0.5 |
| 10,000 | ±1.0 | ±0.9 | ±0.6 | ±0.4 |
| 20,000 | ±0.7 | ±0.6 | ±0.4 | ±0.3 |
| 50,000 | ±0.4 | ±0.4 | ±0.3 | ±0.2 |
