New data from Digital Finance Analytics (DFA) paints a bleak future for many Aussie homeowners.

“One in five Australians [is] walking such a fine mortgage tightrope that they could lose their homes if interest rates rise by even 0.5 per cent,” said Martin North, founder and principal of Digital Finance Analytics.

The DFA has updated its analysis of how sensitive households with owner-occupied mortgages would react to an interest rate rise, utilising data from their household surveys.

“This is important because we now expect mortgage rates to rise over the next few months, as higher funding costs and competitive dynamics come into [play], and as regulators bear down on lending standards,” he said.

The DFA also examined how much headroom each household had to rising rates, taking into account overall income, size of mortgage, whether payments had been made in advance, and other financial commitments. The analysts then ran scenarios across the data, until they hit the mortgage stress threshold.

The results were far from reassuring. Around 20% of homeowners would suffer mortgage stress with an interest rate rise of less than 0.5%, and 4% of homeowners would be troubled by an interest rate rise of between 0.5% and 1.0%.

Around 35% of homeowners could cope with a full 7% rise in interest rates.

Young, growing families and young, affluent households were deemed the most vulnerable to a small rate rise. Rather ironically, the report found that affluent homeowners in well-to-do suburbs, such as Sydney’s Bondi, are among those most at risk of mortgage stress. 

“While there are some out on the suburban fringe who will be in some difficulty, they are sort of used to it. It's this group, the more affluent group, who effectively have pretty much a [flashy] lifestyle and these massive mortgages [who will experience the most difficulty],” North said in a recent interview on 2UE radio.

Using the assumption that rates will increase over the next 12 to 18 months, North believes mortgages are going to rise by at least half of a percent, which could prove burdensome for some borrowers.

“People assume that they are going to get pay rises and therefore [having a large mortgage is] going to be painful for a little while and it's going to be easier in one [or] two years' time,” he said. “However, with incomes static, it's less likely that it's going to be the case.”