The latest results from the Digital Finance Analytics mortgage stress modelling, released today, reveals another rise in the number of households experiencing mortgage stress.
Martin North, Principal of Digital Finance Analytics said “of the 3.1 million mortgaged households, latest results from the DFA surveys of 52,000 households reveals an estimated 669,000 are now experiencing mortgage stress. This is a 1.5% rise from the previous month and maintains the trends we have observed in the past 12 months. The rise can be traced to continued static incomes, rising costs of living, and more underemployment; whilst mortgage interest rates have risen thanks to out-of-cycle adjustments by the banks and bigger mortgages thanks to rising home prices. With the latest housing debt to income ratio at a record 188.7*, households will remain under pressure”.
Within the 669,000 households, which represents 21.8% of borrowing households, 20.8% are in mild stress, meaning they are managing to make their mortgage repayments by cutting back on other expenditure, putting more on credit cards and generally hunkering down. However, the remaining 1% of households are in severe stress, meaning they are behind with their repayments, are trying to refinance, or sell their property or seeking hardship assistance. Households are “stressed” when income does not cover ongoing costs, rather than identifying a set proportion of income, (such as 30%) going on the mortgage.
Regional analysis showed that 193,000 households are from NSW, 175,000 from VIC, 122,000 from QLD and 85,000 from WA. However, the largest relative proportion of households in stress are found in the smaller states of SA and TAS, where the impact of sustained low wage growth and underemployment is strongly felt.
Looking ahead, the probability of 30-day mortgage default has also risen to 1.64%, with the highest risks residing in WA where it is more than 3% in the mining belts. “We expect mortgage stress rates to climb through 2017 as mortgage rate rise, whilst slow wage growth, and underemployment will continue to bite” concluded Martin North.
Detailed analysis shows mortgage stress continues to touch some more affluent households, who are highly leveraged, as well as the more traditional “battler” groups in the urban fringe. Younger families and recent first time buyers are under the most pressure.
*RBA E2 Household Finances – Selected Ratios Dec 2016