Thousands of Australian homeowners are at risk of defaulting on their loans, according to recent data, as mortgage holders anticipate the Reserve Bank of Australia's (RBA) upcoming decision on interest rates. A study by Digital Finance Analytics (DFA) for the comparison site OurTop10 revealed an 18% increase in households experiencing financial distress across the country over the past three months.
The research highlights significant risk in several key states. Queensland saw at least 9,500 households with negative cash flow during the period, the second-highest net increase nationwide after Western Australia. In Victoria, the number of owners trying to maintain their homes rose to 611,311 as of July, up from 536,984 in January, following three RBA interest rate increases. New South Wales experienced a 25% surge in mortgage default risk during the same period.
DFA director Martin North stated that the pressure is most acute for those who purchased homes in recent years. He noted that many have depleted their savings, reaching a "tipping point" as house prices escalated. "This is more about time in cash flow stress than anything else," North said. "More households are net monthly underwater… Banks have been actively intervening – through hardship schemes, interest only and refinance schemes – to avoid registering a default."
Despite these interventions, North indicated that certain segments, including those with larger loans and those financed through small businesses, are beginning to show problems. "We are seeing more hotspots now, and this looks more serious because there is no short-term exit from the current adverse economic settings," he added.
OurTop10 Director Mansour Soltani observed that mortgage stress is no longer confined to a few major cities but is impacting metro areas nationwide. "Perth recorded the largest quarterly increase in stressed households. Hobart produced the biggest postcode-level jump in the country, and Canberra accounted for three of the nation's 10 fastest annual increases," Soltani noted.
North previously described the increased mortgage stress as a "long, difficult episode" rather than a swift resolution. "The latest from our rolling 52,000 household surveys revealed that more households are under financial pressure, whether renting or holding a mortgage," he said. "Recent hikes in interest rates, following the RBA decisions, and higher inflation are compounding the pressure, which we measure in cash flow terms."
Households are advised to understand their cash flows, prioritize spending, and seek assistance from debt counselling services. The National Debt Helpline recently reported an unprecedented number of requests for help from individuals in regular employment.
Headline inflation for June decreased to 3.8% from 4.0%, the lowest level since February. Trimmed mean inflation, the RBA's preferred measure, remained stable at 3.6%, below the central bank's projection. This data has somewhat eased concerns about another interest rate increase when the RBA board convenes on August 10 and 11. The RBA has raised its benchmark interest rate to 4.35% through three hikes this year.