Worst mortgage stress since GFC as Reserve Bank board ponders rates hike

Another 30,000 Australians could be thrown into risk of mortgage stress if the Reserve Bank raises interest rates on Tuesday, according to estimates from Roy Morgan, which is tracking the biggest rise in loan strain since 2009.

About 1.3 million Australians are now considered “at risk” of mortgage stress, up 10.2 per cent annually, after a record year of rate increases.

That’s more than 25 per cent of all mortgage holders, Roy Morgan states, while a further 881,000 people are considered “extremely at risk”.

“The figures for April 2023 take into account the 10 straight RBA interest rate increases which lifted official interest rates from 0.1 per cent in May last year to 3.6 per cent by April,” Roy Morgan chief Michele Levine said.

“[The RBA] subsequently increased interest rates again in the first week of May to 3.85 per cent.”

The grim figures, which come as central bankers mull yet another hike, are the result of about $1200 being added to monthly repayments on a typical $500,000, 25-year loan since May 2022.

Roy Morgan states another 30,000 people could become at risk of loan stress if rates rise from 3.85 per cent to 4.1 per cent on Tuesday.

Such a move would add another $78 to typical monthly repayments.

“If the RBA does raise interest rates again … by 0.25 per cent, Roy Morgan forecasts mortgage stress is set to increase to over 1.4 million mortgage holders (29.2 per cent),” Ms Levine said.

‘Weak productivity growth’

Whether the RBA will pile more pressure onto family budgets or deliver a reprieve in June is on a “razor’s edge”, with economists split over the call amid renewed fears about rising wages growth and low productivity.

Some experts say last week’s decision by the Fair Work Commission to approve a 5.75 per cent minimum wage increase will push the RBA towards another rate hike, while others say it didn’t change anything.

Commonwealth Bank economists argue the RBA is finished with rate hikes and will leave its target unchanged at 3.85 per cent amid a slowing in the economy.

Meanwhile, ANZ Bank’s experts say productivity growth will be too low to deliver a rise in wages without making high inflation more persistent.

Reserve Bank governor Philip Lowe signalled concern that productivity was too weak at an appearance before Senate Estimates last week.

He called it a risk to the RBA’s inflation outlook, which has price growth returning back to the central bank’s target band by mid-2025.

“Nominal wage growth has not been a source of inflation, I want to make it clear,” Dr Lowe said.

“The problem is weak productivity growth.

“Over the past three years, there has been no increase in the average output produced per hour worked in Australia – no increase for three years.

“It’s a problem for the country and it’s a problem for the inflation outlook as well.”

The RBA will hand down its June interest rates decision at 2.30pm AEST on Tuesday.

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