Households in mortgage stress could hit one million in 2018

The number of Australian households facing mortgage stress has risen by nearly 20% in the past six months to hit 900,000, according to new analysis of lending repayments and household income by Digital Finance Analytics (DFA).

Rather worryingly, this figure is on track to top one million households by 2018.  

The sharp rise in mortgage stress means net incomes are not covering ongoing costs in nearly 30% of Australian households, up from about 25% in May.

The rising cost of living, stagnant income growth, growing unemployment, and the likelihood that rates will rise rather than fall means the number of families struggling to make ends meet will also increase.

The banks’ recent attempts to build market share by lowering their underwriting standards is also expected to contribute to stress, with many borrowers struggling to repay “jumbo” loans.

“Risks in the system will continue to rise,” said Martin North, principal of Digital Finance Analytics. “The numbers of households impacted are economically significant … Mortgage lending is still growing at three times income. This is not sustainable.”

Almost 22,000 households – half of which are professionals or young and affluent – are facing severe stress. This means they’re unable to meet mortgage repayments from current incomes and are managing by reducing expenditures and putting more on credit cards. Some of the more distressed households are resorting to refinancing or selling their homes.

Approximately 52,000 households risk a 30-day default over the next 12 months, an increase of 3,000 from the previous month.

“Even a relatively small rise in the interest rates paid by households would crimp their spending,” said Brendan Coates, a fellow at the Grattan Institute. “If interest rates increase by 2 percentage points, mortgage payments on a new home will be less affordable than at any time in living memory, apart from a brief period around 1989 — an experience that scarred a generation of home-owners.”