Australians’ mortgage payments hit high not seen since before GFC, data shows
Mortgage holders are spending well over 20% of their pre-tax income on their loans, representing one of the highest levels on record, data compiled by the Commonwealth Bank shows.
It has rocketed in recent years amid rising interest rates and high living costs to a level last seen two decades ago when frothy property prices took hold before the 2008 global financial crisis.
In the late 1990s, households were spending just over 10% of pre-tax income to meet repayments.
The figures are an average, which means some cohorts are spending considerably more than one-fifth of their income to hold on to their homes and avoid looking for a rental in a tight market.
The CBA chief executive, Matt Comyn, said on Wednesday those aged between 35 and 44 had the highest share of mortgage balances and were most exposed to higher interest rates.
“We expect to see further increases in arrears in the months ahead, given continued pressure on real household disposable incomes,” Comyn said.
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“We can also see that savings are being depleted, particularly for working families. Younger Australians, who tend to have lower incomes and smaller savings buffers, are the most sensitive to changes in prices.”
The financial strain is leading to an increase in the number of households falling behind on their repayments, with the value of “past due” home loans increasing from $14.8bn to $17.6bn last financial year, according to CBA’s results.
A sizeable portion of that increase is from households that are so far behind that they are unlikely to recover unless they receive external support, such as financial gifts from family.
For example, $1.9bn worth of CBA’s past due home loans are between 90 and 179 days late, up from $1.2bn a year ago.
Credit card and personal loan arrears have also jumped in a reflection of the “impact of higher interest rates and cost-of-living pressures on some borrowers”.
The arrears data may actually understate the extent of financial stress in the community, because lenders typically allow customers flexibility, which can include loan deferments that prevent a customer going into arrears.
Comyn said the bank had provided 132,000 “tailored payment arrangements to those most in need”.
Households also typically prioritise mortgages over other repayments, such as car loans, which means some bank customers are grappling with mounting debts outside their family home.
The rising number of arrears do not yet pose a financial problem to the banks, given they have risen from low levels to now be in line with pre-pandemic rates, according to rating agency Moody’s.
High house prices have also meant lenders can generally retrieve their money even when a mortgage holder is forced to sell.
But the pace of the increasing arrears is fast, and the strain on households is mounting.
Moses Samaha, the executive general manager at credit reporting agency Equifax, said arrears would accelerate if there were further increases in the unemployment rate as resilience among higher risk households weakened.
“Any rate rise would further push household finances to a knife’s edge, widening the impact across other cohorts that so far have been able to protect their mortgage payments,” Samaha said.
CBA noted that the last six months had been particularly tough on younger customers, with savings rates falling fast for those aged under 45. Those aged under 35 were also engaging in the deepest cuts to their spending.
Meanwhile, the over-65 cohort had enjoyed a 7% boost to their savings over the past year, after benefiting from interest rate rises on their deposits.