Mortgage stress in Australia: signs, solutions, and how to stay ahead
Owning a home is often sold as the Australian dream, but for many, the reality includes juggling mortgage repayments, rising interest rates, and the increasing cost of living; all while trying to maintain some semblance of sanity. If you’re feeling the financial pressure, you’re definitely not alone. With the latest mortgage stress data now available, we’ve got the lowdown on where Australian households stand. So, let’s cut to the chase: what exactly is mortgage stress, how can you tell if you’re in it, and most importantly, what can you do about it?
What is mortgage stress and how did we get here?
Mortgage stress isn’t just a term; it’s the financial strain that hits when your monthly mortgage repayments start eating up more of your household income than they should. With the Reserve Bank of Australia (RBA) increasing official interest rates 13 times in the last 15 months, many Australian mortgage holders have found themselves grappling with this very real issue.
Interestingly, even though levels of mortgage stress peaked at 35.6% back in 2008, today, more people are struggling because everything costs more. Rates are now sitting at 4.35%, the highest since 2011, pushing 20% of mortgage holders into the “extremely at risk” category; double the 10-year average.
How many Australians are in mortgage stress?
As of September 2024, Roy Morgan shows that 29.5% of Australians are at risk of mortgage stress.
With the RBA holding the cash rate at 4.35% in September; the highest since 2011, many Australian homeowners are feeling the squeeze. Even though inflation has fallen from its 2022 peak, it’s still not dropping as quickly as hoped. The economic outlook is uncertain, with potential for both higher inflation and slower growth. The RBA is determined to get inflation back to the target of 2.5% by 2025–2026 but isn’t ruling out more rate hikes. They’re keeping a close eye on the data and are ready to act.
The good news? July’s Stage 3 tax cuts are predicted to offer some relief for mortgage holders. Although we’re not quite at the record highs of the 2008 peak (35.6%), a worrying 1,013,000 Australians (18.6%) are now ‘extremely at risk’, well above the decade-long average of 14.5%. Projections suggest we’ll see a reduction in the proportion of mortgage holders ‘at risk’ post-tax cuts, despite potential future rate increases. For more details, check out the full report.
Are you at risk of mortgage stress?
Signs and symptoms
Wondering if you’re one of the 1.6 million Australian householders feeling the mortgage squeeze? Here are some tell-tale signs:
- More than 30% of your income goes towards your mortgage: If over a third of your paycheck is funnelled into monthly mortgage repayments, you might be in the danger zone.
- Bills cause instant anxiety: If the arrival of your bills makes you want to hide under the covers, it could be a sign that your finances need attention.
- You’re dipping into savings or maxing out credit cards: If your savings account is dwindling or you’re relying on credit cards to make ends meet, it’s time to take a closer look at your financial health.
Not sure where you stand? Use our most popular online tool, the MyBudget mortgage stress calculator to find out if you are at risk of mortgage stress.
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The mortgage stress bar shows visually how close you could be to experiencing mortgage stress.
Causes of mortgage stress
Mortgage stress doesn’t just sneak up on you; here are the top 3 culprits that put the squeeze on your finances in the Australian mortgage market today:
- Unemployment: Losing your job or dealing with unstable work can put huge pressure on mortgage holders. Even though unemployment dropped to 9.1% in August 2024, it’s still a key factor to watch out for.
- Rising interest rates: When interest rates climb, so do your monthly mortgage repayments. The RBA’s rate hikes over the past two years have left many Aussie homeowners struggling to keep up.
- Cost of living increases: Everyday expenses like groceries, utilities, and petrol prices add up, and when those costs rise, it leaves less room in the budget for mortgage payments.
Impact of mortgage stress on borrowers
Mortgage stress doesn’t just strain your finances; it can also lead to default notices, which risk penalties and the possibility of losing your home. The mental toll is significant too, with stress, anxiety, and depression often following financial worries. Long-term, it can damage your credit score, limit future borrowing options, and delay achieving your financial goals. Understanding these impacts can help you take proactive steps to manage financial stress before it spirals.
Managing mortgage stress
Budget your way out of mortgage stress
Budgeting doesn’t have to be a dreaded chore; it can actually be the key to unlocking financial peace of mind. In fact, it’s your best defence against mortgage stress. Start by jotting down all your expenses; yes, even that daily coffee! Maybe it’s time to rethink a few of those subscriptions or order fewer takeaways. And if you can, pay more than the minimum mortgage repayment to build a savings buffer against future interest rate rises.
Make things easier with MyBudget’s free Personal Budget Template. It’s an invaluable tool for seeing where your money’s going and making adjustments. Plus, if you need extra support, MyBudget is here to help you create a stress-free financial plan that sets you up for a more secure future.
Refinancing options
Refinancing might sound like a hassle, but it could be the key to lowering your monthly mortgage repayments. By swapping out your current mortgage for one with better terms, you could save a significant amount on interest; and that could mean thousands of dollars back in your pocket.
On average, clients who refinanced their home loan through MyBudget Loans saved around $10,000 per year. This could be a real game-changer and a reduction in mortgage stress.
If you’ve been wondering about debt consolidation, take a look at our guide: Debt consolidation: Is it right for you?
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Build emergency savings
An emergency fund isn’t just a nice-to-have; it’s a must. Aim to save a minimum of three months worth of living expenses. To make it more fun, turn saving into a game, set mini-goals and reward yourself when you hit them. You could even challenge friends or family to join the race, who doesn’t love a bit of friendly competition? This way, if something unexpected happens, like a job loss or an injury, you’ll have a financial cushion to fall back on.
Managing mortgage stress can feel overwhelming, but you don’t have to go it alone. MyBudget can help you implement all of these strategies; from creating a budget that works for you to exploring refinancing options through MyBudget Loans and building that essential emergency fund. With our support, you can take control of your finances, reduce stress, and secure a brighter, more stable future. Whether you need guidance or a full financial plan, MyBudget is here to help you every step of the way.
Steps to take if facing financial hardship
Financial hardship can feel like a mountain to climb, but there are resources to help you get through it.
- Emergency financial resources: If you’re in a tight spot, the Australian Government offers support through Centrelink’s Crisis Payment and JobSeeker Payment. They can provide immediate relief.
- Seeking professional support: For free financial guidance, check out the National Debt Helpline. They offer free advice to help you navigate your options.
- Tailored financial solutions: At MyBudget, we’re not just about numbers; we’re about people. We offer a safe, non-judgmental space where you can be honest about your financial situation, and our team is here to listen with compassion. From creating a realistic budget to planning for long-term financial resilience, once you’re all set up, you’ll wish you had called us years ago. The relief our clients feel when they can finally let go of the stress of making ends meet is something we love to provide. Seeing clients thrive and enjoy life again is what makes our work truly rewarding.
What’s next for mortgage stress in Australia?
The 2024 tax cuts are already in full swing, bringing some much-needed relief to many Australians. With a boost in disposable income, the number of “at risk” mortgage holders is expected to dip slightly in the coming months. However, with potential interest rate hikes looming, staying prepared is key. Keep up with the latest financial news by following MyBudget on Facebook.
Have you read our article on how to make the most of the 2024 tax cuts to ensure you’re getting the full benefit?
How can MyBudget help with mortgage stress?
If you’re feeling the pressure or just want to get ahead before things get too tight, MyBudget is here to help. We’ve assisted over 130,000 Australians in taking control of their finances, reaching their budgeting goals, and paying their bills on time. Enquire online or give us a call at 1300 300 922.
Cheryl is part of the My Budget Corporate Finance team and takes care of the company’s finances with the same care that MyBudget extends to their clients budgets. She speaks from the heart about relevant financial topics, reflecting on her own personal journey through separation, single parenting, budgeting, investing and beating cancer.