A survey from Roy Morgan’s research institute has found that nearly one million Australians experience mortgage stress. This equates to over 20 per cent of the population.

While the results of Roy Morgan’s interviews of 10,000 owner-occupier mortgage holders are significant, mortgage stress is down slightly since this time last year, when 21.3 per cent of the population experienced mortgage stress.

Mortgage stress

There has also been a slight decrease of mortgage holders considered “extremely at risk” (14.9 per cent in 2017 down to 13.5 per cent in 2018).

Sydney and Western Australian mortgage holders were found to be more “at risk” than other parts of the country.

What is mortgage stress?

The term “mortgage stress” implies stress resulting from mortgage responsibilities. The term, however, is more technical than that. Mortgage stress refers to mortgage holders who pay more than 30 per cent of their household income in mortgage repayments.

While a psychological state of stress may result from this equation, “mortgage stress” does not imply that households are necessarily suffering.

Why mortgage stress?

The high percentage of Australians experiencing mortgage stress increased in 2017, largely due to the rise of house prices combined with low interest rates, and low income growth. Incomes are not inflating at the same rate as house prices. More people have been able to get into the housing markets, because interest rates have been kept at record lows.

Why has mortgage stress declined slightly?

Loan accessibility has changed a lot in the last year due to increased restrictions enforced by the Australian Prudential Regulation Authority (APRA) and, more recently, findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services.

House prices have also slowed in the last year, particularly in Sydney and Melbourne, where prices raced ahead in the previous few years.

Changes in tax may have also contributed to the slight shift.

“The decline in the level of mortgage stress over the last 12 months is due to a marginal increase in the after-tax household income as a result of reduced tax rates and a small reduction in the average standard variable rate from the RBA,” says Norman Morris, Industry Communications Director, Roy Morgan Research.

A way out?

One way out of mortgage stress is to pay off your home loan. However, the recent results suggest that while fewer people have a home loan in 2018 than in 2017, the average balance of loans has not declined.

“This indicates that loans aren’t being paid off quickly, potentially as a result of low interest rates and the use of redraw facilities to use funds for other purposes,” says Morris.

The concern is that when interest rates inevitably rise, people who’ve borrowed at a low rate will experience stress. While we can’t depend on wages rising at the rate they need to, what we can do is pay off as much of our loan as we can. Even though we may have the option to redraw from our mortgage to use for renovations, holidays and other expenses, it may be worth taking a long-term view, and squirreling away nuts for the winter months; in other words – paying off as much of our mortgage as we can now before rates increase.

Book a chat today with your Smartline Adviser to discuss how you can beat mortgage stress.