New research from Roy Morgan shows levels of 'mortgage stress' fell to near record lows during the COVID-19 pandemic, mainly due to mortgage deferrals offered by lenders.
According to Roy Morgan's research, in the three months to August 2020 there were 751,000 mortgage holder (20.2%) experiencing mortgage stress.
This is near the record lows of a year ago when only 723,000 mortgage holders were considered 'at risk' in October 2019.
Meanwhile, 12.5% of mortgage holders were deemed 'extremely at risk', a slight increase from around 10% last year.
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Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
Roy Morgan considers someone to be at risk of mortgage stress in two ways:
People are 'at risk' if their mortgage repayments are greater than 25%-45% of their household income (depending on their income and spending), while they're considered 'extremely at risk' if the 'interest-only' component of their repayments is over that portion of income.
Source: Roy Morgan
Roy Morgan Chief Executive Michele Levine says the support provided by both the Federal Government and financial institutions have either prevented or put off a potential real-estate crisis.
"The latest Roy Morgan data into the Australian housing market shows mortgage stress was near record lows in the three months to August 2020 as most of Australia, apart from Victoria, was emerging from nation-wide lockdowns implemented through March-May 2020," Ms Levine said.
"However, these figures are somewhat deceptive as they rely on an unprecedented level of support provided to the economy.
"The Federal Government has subsidised workers with the $1,500 a fortnight JobKeeper wage subsidy, the almost doubled JobSeeker payment of over $1,100, and allowed businesses to trade while insolvent this year to keep people employed."
Ms Levine said the deferred mortgage repayments offered by banks and lenders have helped.
According to Australia's prudential regulator, banks deferred as much as $195 billion worth of housing loans as of August 2020, representing 11% of the total home loan market.
According to regulator figures, 90% LVR home loans and interest-only loans have higher rates of deferral, and Ms Levine said borrowers with these loans are more likely to experience mortgage stress if they became unemployed or fall upon hard times.
“Because of these measures the impact of COVID-19 is yet to be fully felt, but we already know there will be significant pressures emerging when the support ends," Ms Levine said.
“Over the many years of our research into mortgage stress, the data shows clearly 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.
Previous transactional data from Commbank showed 14% of deferred home loans had at least one borrower receiving JobSeeker payments.
More than half of these (58%), or roughly 7% of all deferred loans, were joint accounts with only one borrower on JobSeeker.
“JobKeeper has already been reduced in early October 2020 and is set to end entirely by April 21 while the mortgage deferrals offered by banks to customers in financial distress are set to run out at the same time," Ms Levine said.
"One of the biggest tasks for banks during the present period is to determine which customers will be able to return to paying their mortgage in the period ahead and which customers will not have that capacity when the deferrals end early next year.”
Roy Morgan found mortgage stress is significantly higher among those who've experienced negative employment changes during COVID.
For such people, 26.7% are now in ‘mortgage stress’ – over 6 percentage points higher than for all mortgage holders.
Over one-in-six (16.8%) are ‘extremely at risk’.
Source: Roy Morgan
Roy Morgan's findings are in contrast to Digital Finance Analytics' (DFA) reports, which suggest overall levels of mortgage stress are still close to record highs, although it should be noted DFA used a different definition for mortgage stress.
DFA measures mortgage stress purely in cash-flow terms: if cash flow is close to zero (money in minus money out, including mortgage repayments), then a household is in stress.
DFA found overall mortgage stress eased to 39.5% in September but remains very high, and is well over 40% in certain states (Tasmania recorded 54.4% mortgage stress).
Meanwhile, young growing families (which include first time buyers) are the most exposed, recording mortgage stress levels of 73.5% on average.
Regardless of the numbers, stress levels are likely to rise once income support and mortgage holidays end next year.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
- If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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