Tax cuts starting this month should start to reduce the number of Australian households facing mortgage stress provided the jobs market holds up and the Reserve Bank doesn’t hit them with higher interest rates, according to a RoyMorgan report.
The research firm found more than 1.6 million mortgage holders, or 30.3% of the total, were facing mortgage stress in June, up 88,000 from the previous month.
The tally, based on a calculation of after-tax income, spending and debt size, was slightly down on the start of 2024 and below the record 35.8% share during the global financial crisis in 2008.
Those deemed “extremely at risk” – based on their share of household income being spent on repayments and outstanding debt – topped 1.016 million, about 20% of mortgage holders. That level compared with a 14.5% proportion over the past decade.
Mortgage stress remains high, although down a little from peaks earlier in the year. Stage three tax cuts should see the levels ease a bit - provided the jobs market holds up, @RoyMorganAus says. pic.twitter.com/vq3u9RajWL
— @phannam@mastodon.green (@p_hannam) July 23, 2024
Michele Levine, Roy Morgan’s chief executive, said the strong labour market including 673,000 jobs created in the past year, had “provided support to household incomes which have helped to moderate levels of mortgage stress since the highs of early 2024”.
Some relief would also come in the form of the stage-three tax cuts that take effect this month, provided unemployment rates don’t rise sharply and the Reserve Bank doesn’t lift its cash rate again.
“The stage-three income tax cuts are delivering significant financial relief, and a boost to take home pay, for millions of Australian taxpayers – including many mortgage holders,” Levine said.
The RBA board meets on 31 July with investors betting there is only about one-in-four chance of an interest rate hike. June quarter inflation figures out on 31 July could shift those odds, particularly if they exceed the 3.8% CPI level the bank had modelled in its May forecast.
Mortgage stress has been elevated after the RBA’s 13 rate rises and the number of those falling behind on repayments has been increasing. The proportion reporting arrears was 1.6% in the March quarter, up from 1% in the September quarter of 2022 but still slightly below the pre-Covid level of 1.8%, CoreLogic has noted.
Other signs that consumers might be feeling more confident as the tax cuts arrive include the latest weekly consumer sentiment survey by ANZ and Roy Morgan. Its main gauge reached a six-month high, the two organisations reported on Tuesday.
Latest weekly survey by @ANZ_Research and @RoyMorganAus has consumer confidence ticking up to a six-month high. Inflation expectations are moderating a bit too... pic.twitter.com/jCDnSdk6ur
— @phannam@mastodon.green (@p_hannam) July 23, 2024
“Notably, households’ confidence in their current financial situation was the second highest since early-2023,” the ANZ economist Madeline Dunk said.
“This suggests households may be starting to see a boost to their incomes from the stage-three tax cuts and other cost-of-living relief measures.”
Mortgage stress, though, may be something a portion of the population might not get to experience if the cost of buying a home prevents people from entering the market.
A study to appear in the October edition of the journal Cities looked at the affordability of the greater Sydney property market from 2004 to 2021 given varying employment contracts and projected how conditions were likely to change out to 2031.
“The forecasted entry affordability shows there is nowhere in greater Sydney where the mere reliance on NSW median part-time or median full-time income could make entry to the market possible,” the study found.
“This means prospective home buyers will require support elsewhere or scale down their housing desire,” it said.
