One in five borrowers experience mortgage stress in 2020. Image credit: AdobeStock
The number is up from historical lows registered during mid-2020, and it coincides with the scaling back of financial programs meant to help citizens stay afloat during the pandemic.
This timeframe of the Roy Morgan study overlapped with Victoria’s second lockdown, which was a long one. The report also commented that “the last few months have taught us that border closures and short sharp lockdowns appear to be with us for some time to come,” which raises concerns for the stability of mortgage holders in 2021.
from July to September 2020, mortgage stress affected 668,000 mortgage holders, a number 14% than it was as the year closed. During that period the maximum support provided to the economy by the Federal Government helped keep the rate low. Measures were taken by financial institutions and banks to support borrowers by giving financial aid to mortgage holders in distress.
Different institutions have different parameters for what makes a mortgage holder count as “at-risk”. In the parameters of the Roy Morgan study, they considered being at risk all the mortgage holders who were “paying more than a certain proportion of their after-tax household income (25% to 45% depending on income and spending) into their home loan, based on the appropriate Standard Variable Rate reported by the RBA and the amount they initially borrowed.”
More than half, 454,000 or 12.4%, of those ‘At Risk’ were considered ‘Extremely at Risk.’ While this is still low when compared to levels over the last few years, this is still up from the promising record lows reported in the three months leading up to October 2020.
Financial support provided by banks, financial institutions, and Governments is being progressively withdrawn as 2021 rolls on. The end of March will see wage subsidy programs like JobKeeper and mortgage holidays start to expire. Tracking the level of mortgage stress during 2021 will become even more important due to these withdrawals, as it can warn of potential financial problems on the rise.
The impact of COVID-19 on the employment of Australians has also been tracked by Roy Morgan. 11.2 million working Australians reported a change to their employment due to COVID-19, in May 2020. In November 2020, 10.2 million were still reporting changes in employment situations.
Negative employment changes have comprised many of the reports. Reasons listed included:
Among the Australians who reported negative employment changes the rate of mortgage stress is 25.7%, 5.7% higher than the average reported for all mortgage holders. This group is also more likely to be considered “extremely at risk” by Roy Morgan’s parameters. The national extremely at-risk rate is 12.4%, while the rate for this particular group is 16.8%.
Whether or not the situation will improve throughout 2021 is an open question. And it’s important to note that late mortgage payments aren’t just an immediate problem. Failure to deliver mortgage payments on time can also have a negative impact on the credit score of the mortgage holder, and bad credit can last for years. According to 1st UK mortgages, a bad credit score won’t necessarily lock people out of getting loans, but it can limit the number of options they have available.