Rising Mortgage Stress Amid Inflation and Interest Rate Pressures
As inflation and high interest rates continue to strain household budgets, mortgage stress is becoming a significant concern for many borrowers. Unfortunately, any potential relief through rate cuts seems unlikely until next year.
Delayed Rate Cuts and Economic Data
ANZ’s head of Australian economics, Adam Boyton, recently revised his forecast, postponing the expected interest rate cuts from November to February next year. This adjustment follows a series of economic data indicating stronger-than-anticipated household consumption, a resilient job market, and persistent inflation.
In a note to clients, Boyton emphasized that while monetary policy is having its intended effect and the economy is slowing, particularly in private demand, the balance between demand and supply will take longer to stabilize. ANZ’s economists maintain that two rate cuts are expected after February, though they caution that risks are skewed towards a smaller reduction of 50 basis points rather than a more substantial 100 basis points.
Investors are more pessimistic, fully pricing in a 25 basis point easing only by July next year. Meanwhile, all eyes are on upcoming US inflation data and the Federal Reserve's meeting for further insights into the global rate cut trajectory.
Mortgage Stress on the Rise
Despite the pressures, most Australian household borrowers are still managing to meet their loan repayments, according to the Australian Council of Financial Regulators. However, the proportion of borrowers falling into arrears has increased. This rise in financial distress is attributed to the combined effects of inflation and high interest rates, which have led many households to adjust their finances.
Starting in May 2022, the Reserve Bank of Australia (RBA) raised interest rates 13 times to a 12-year high, aiming to curb inflation. Since November, the RBA has held the cash rate steady at 4.35%, awaiting more evidence of inflation returning to its target range of 2-3%.
The Council also reviewed risks from domestic lending to commercial real estate (CRE), noting that these risks remain contained due to banks' conservative lending practices and the strong financial positions of CRE owners.
Government Response and Financial Hardship
Treasurer Jim Chalmers highlighted upcoming measures set to take effect on July 1, designed to alleviate household pressures. These include tax cuts for every taxpayer and energy rebates for households and small businesses.
Recent data from the Australian Securities and Investments Commission (ASIC) revealed a 54% increase in hardship notices in the final quarter of 2024 compared to the same period the previous year. ASIC has urged banks to enhance their support for struggling borrowers, noting that some banks have failed to adequately assist customers in need.
As mortgage stress continues to climb, it is crucial for borrowers to stay informed and explore available financial assistance options. At Renown Private Lending, we are committed to supporting our clients through these challenging times, offering personalised solutions to help manage financial pressures effectively.
