The proportion of borrowers falling behind on their mortgages has worsened following the most aggressive rate hikes in a generation, and more bad news is expected.
CoreLogic research director Tim Lawless said mortgage arrears, when a borrower was at least 30 days behind on their payments, would likely get even worse as higher interest rates drive up unemployment.
“Mortgage arrears are likely to rise further as unemployment rises, household savings are further depleted and, more generally, economic conditions go through a period of weakness,” he said.
The proportion of borrowers falling behind on their mortgages has worsened following the most aggressive rate hikes in a generation, and more bad news is expected.
New data from CoreLogic showed that 1.6 percent of borrowers were behind on their payments in the March 2024 quarter, and more than half of stressed mortgage holders in this group were more than 90 days late.
This is a big increase from just 1 per cent in the September 2022 quarter, when the Reserve Bank had raised rates five times.
The RBA has raised rates 13 times, to a 12-year high of 4.35 per cent, as part of the most aggressive monetary policy tightening since the late 1980s.
The Reserve Bank does not expect inflation to fall back within its 2 to 3 per cent target until December 2025.
But that would mean more than 44,000 people would lose their jobs, and unemployment is forecast to rise to 4.3 percent by then, up from 4 percent in May.
Still, Lawless said unemployment would have to be much higher for mortgage arrears rates to skyrocket.
Reserve Bank Governor Michele Bullock hinted she was concerned that rising unemployment would make it harder for borrowers to pay their mortgages.
“Arrears are unlikely to experience a material ‘explosion’ unless labor markets weaken substantially more than expected,” he said.
Reserve Bank Governor Michele Bullock has hinted that she is concerned that higher unemployment will make it harder for borrowers to pay their mortgages.
“It is essential that people have jobs to be able to meet the challenges of the increased cost of living,” he told reporters Tuesday.
This week, the RBA left interest rates unchanged, but Bullock confirmed that the board had considered a rate hike, but not a cut.
“Yes, at this meeting the council discussed the need to increase interest rates,” he said.
“No, the case of a cut was not considered.”