More Aussies Drowning in Mortgages, but Rates Aren't the Only Culprit

Wednesday, 28 February 2024

While rising interest rates are a contributing factor, new research reveals a shocking truth: a record number of Australians are struggling to keep up with their mortgage payments, and it's not just due to higher borrowing costs.

The latest data from Roy Morgan paints a grim picture, showing that over 1.6 million homeowners, or 31%, are now "at risk" of mortgage stress. This surpasses all previous records, even those set during the Global Financial Crisis.

However, the share of homeowners facing financial strain is lower than 2008, when a staggering 35.6% were in mortgage stress, due to the significantly larger size of the Australian mortgage market today.

The study defines "at risk" as households where mortgage repayments exceed a specific threshold of their income, taking into account both income and spending patterns.

While rising interest rates, now at a 12-year high of 4.35%, are undoubtedly a significant factor, the research suggests other forces are at play:

  • Stagnant wages: With wages failing to keep pace with the rising cost of living, many Australians are struggling to make ends meet, leaving less disposable income to cover their mortgage repayments.
  • Household debt: Australians are carrying record levels of debt, making them more vulnerable to economic shocks and rising interest rates.

Financial experts warn that further interest rate hikes could exacerbate the situation, pushing even more homeowners towards mortgage stress and potentially triggering defaults and foreclosures.

This situation raises concerns about the future stability of the Australian housing market and highlights the need for a multifaceted approach to address the issue. Policymakers need to consider measures to address stagnant wages, manage inflation, and potentially review policies like negative gearing, which can further inflate property prices.

Ultimately, ensuring Australians have a strong financial safety net and sustainable housing options is crucial to navigate these challenging economic times.

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