What can rates of mortgage stress tell us about housing affordability?

There are all sorts of ways to look at the health of the Australian property market. From interest rates to the number of homes for sale, the right information can tell us a lot about the state of play in real estate. One of the most important factors to consider is mortgage stress, which is an incredibly useful indicator of how hard or easy it is to get into the market.

In this article, we’ll take a closer look at what mortgage stress is, and dive into some data which highlights significant improvements.

What is mortgage stress?

In very basic terms, mortgage stress is when the cost of meeting home loan repayments takes up a high proportion of household income. One of the confusing things about mortgage stress is that it doesn’t really have a firm definition – what’s stressful for one person may be normal for another. In general however, most agree that mortgage stress is when a mortgage holder is spending more than 30 per cent of their pre-tax income on mortgage repayments.

Rates of mortgage stress across the country are dependent on all sorts of factors, with interest rates being one of the most significant. For example, the Australian Financial Review recently reported that if interest rates rose by 2 per cent, more than half of Aussie mortgage holders could fall into the category of being under mortgage stress, underlining the importance of choosing the right home loan now while rates are relatively low.

Less mortgage stress across Australia

Low interest rates have had a huge impact on mortgage stress in Australia, with recent data from Roy Morgan Research revealing a downward trend in the percentage of Aussies who fall into the category of spending more than 30 per cent of their income on repayments.

According to Roy Morgan Research, in the three months ending April 2017, roughly 16.8 per cent of Australian mortgage holders were under mortgage stress, in comparison to 18.4 per cent at the same time in 2016. This is a fantastic improvement, especially when you look back over the last decade to May 2008, where mortgage stress levels were at a whopping 32.7 per cent.

Clearly, Aussies are enjoying improved financial stability and are in a better position to pay off their home loans as a result of lower interest rates. Get in touch with your Mortgage Choice broker for more information about securing your own loan.