Chart of the Month - October 2023
Increasing financial stress on mortgage payers
While Australia is not in recession, it sure feels like it for many households. The tube of toothpaste is being squeezed from both ends with rising living costs at one end and rising mortgage payments at the other end. This month’s chart shows that the percentage of variable-rate owner-occupiers whose cost of living now exceeds their income has more than quadrupled between April 2022 and July 2023 for both the baseline and broad measure.
HEM stands for Household Expense Measure. The Baseline HEM includes essential expenses such as food, utilities, and transport. The Broader HEM includes other items that cannot easily be changed in the short term such as school fees and medical insurance. Neither include housing costs: mortgage or rent.
With the cost of living squeezing household expenses, more Australians are finding it harder to meet their mortgage payments. The September Roy Morgan survey on mortgage stress found that 30.3% of mortgage holders are “At Risk” i.e. struggling to meet mortgage payments while 20.5% or over million Australians are ‘Extremely At Risk” i.e. struggling to pay even the interest part of their mortgage payments (see chart below).
The number of Australians under mortgage stress is set to swell further given that the RBA may still yet raise rates further (with inflation increasing 1.2% in the September quarter) and because over 40% of variable-rate owner occupiers have less than 3 months of mortgage buffers after accounting for the cost of living (see chart below). They don’t have much room to breathe.
Thankfully, many Australians in or near mortgage stress don’t have to worry about losing their job, at this stage, with unemployment still remarkably low at 3.6% for September. But if unemployment increased, Australia could quickly find itself in a consumer-led recession with worries in the housing market.