Mortgage stress impacting more than 2 million property owners

The number of homeowners and property investors struggling with their mortgages is surging, as the ability of Australians to make repayments takes a beating.

About 2.3 million Australian property owners are under financial pressure with their mortgages, the latest research from Digital Finance Analytics (DFA) shows.

Owner-occupiers in mortgage stress edged up by 1.6 percentage points 39.1 per cent in June, equivalent to 1.47 million households, the survey of 52,000 households found.

Despite home loan interest rates plunging to the lowest on record, the owner-occupied mortgage stress rate is up about 6 percentage points from 32.9 per cent in February, before COVID-19.

But the mortgage stress rate is expected to rise to 40.3 per cent in August, when JobKeeper and JobSeeker will be tapered for many COVID-19 affected workers and households.

DFA principal Martin North noted that the proportion could be “lower in reality” if the government stimulus measures are removed gradually.

He pointed out that mortgage stress is an “early warning sign” of potential issues further down the track.

“Of course they may have assets like deposits, or put more on credit cards, but generally households under pressure spend less, hunker down, and some two to three years later, end up selling or even defaulting,” he said.

More property investors in mortgage stress

Meanwhile, some 830,000 property investors are “stressed” in terms of cash flow, as they are not making a sufficient income to balance out the property’s outgoings, including the costs of owning and letting their properties. This is equivalent to more than half of mortgaged investment properties.

Of these 830,000 investors, about 126,000 are considered to be “severely distressed”, with low occupancy or high repair costs being among the most common reasons for distress.

About 59 per cent of the 2.8 million property investors in Australia have a mortgage.

About 11 per cent of housing loans, worth a combined $192 billion, have been deferred temporarily, the latest data from the Australian Prudential Regulation Authority showed.

Is it a good time to refinance your mortgage?

Earlier this week, Reserve Bank of Australia (RBA) governor Philip Lowe urged those on a home loan to consider taking advantage of record-low home loan interest rates and shopping around for a better deal. 

“I encourage people who haven't already taken up the opportunity to do that to look at their mortgage rate and look for a better deal,” he said in an online speech on Tuesday.

With many battening down the hatches as the government tips the biggest federal budget deficit since World War II, it could be a good time to think about your own household budget and the interest rate on your home loan, likely to be your biggest debt. Three quarters of mortgage-holders don’t know their mortgage rate, according to UBank’s 2019 Know Your Numbers Index. Being uninformed about your debts doesn’t make it easy when you plan your budgets.

If you’re a property owner feeling the pressure from your mortgage, it may be an opportune time to refinance, either with your existing lender or with another bank. For some, it may even be possible to switch to a home loan with an interest rate below 2 per cent. 

Keep in mind that generally borrowers living in their own home may have a higher chance of securing a lower rate than investors. Those with more than 20 per cent equity in their property may also have a stronger chance.

Let’s say you’re an owner-occupier with a $400,000 home loan, on a 3.5 per cent interest rate over 30 years. If you refinance to a 3 per cent mortgage, it’s possible that you could bring your monthly repayments down by $110, a RateCity analysis showed. While this might not sound like a lot of money, you could be saving $1,320 in one year, or $6,600 in the first five years. This assumes that your rate doesn’t move again in those five years.

Compare home loans in Australia