Mortgage stress drops after first RBA rate cut in | Australian Markets

The latest information from Australian analysis firm, Roy Morgan, has indicated that the quantity of mortgage holders ‘At Risk’ of mortgage stress has declined for the second consecutive month by 1.2 per cent, following the Reserve Bank of Australia’s (RBA’s) first coverage easing choice in over 4 years.

After the RBA’s 0.25 per cent rate cut to 4.1 per cent in February, the share of mortgage holders thought-about by Roy Morgan to be ‘At Risk’ of mortgage stress dropped to 26.5 per cent in March (1,451,000) – its lowest level recorded in just below two years.

While the quantity of Australian mortgage holders deemed ‘At Risk’ of mortgage stress has jumped by 644,000 for the reason that RBA first commenced their financial tightening cycle in May 2022, new predictive modelling performed by Roy Morgan means that this quantity would lower in alignment with additional curiosity rate reductions by the RBA.

If a 0.25 per cent lower is introduced on the subsequent RBA board assembly in May, the quantity of ‘At Risk’ mortgage holders would fall by 13,000 or 0.3 per cent to 1,438,000; a additional 0.2 per cent or 14,000 mortgages are projected to drop out of the ‘At Risk’ section in June.

“After increasing for three straight months from October, the RBA’s decision to reduce interest rates by +0.25% to 4.1% in mid-February has now led to back-to-back monthly reductions in mortgage stress which is now at its lowest since June 2023 – when interest rates were first increased to 4.1%,” Michele Levine, CEO of Roy Morgan, stated.

“Nevertheless, the figures for March 2025 symbolize an increase of 644,000 thought-about ‘At Risk’ for the reason that RBA started raising rates of interest almost three years in the past in May 2022. “The latest ABS month-to-month inflation estimates for February 2025 confirmed annual inflation at 2.4%, down 0.1% from January and just below the mid-point of the RBA’s most popular goal vary of 2-3%.

“This is the seventh straight month the official inflation estimates have been within the RBA’s most popular goal vary of 2-3% and is the driving issue behind the RBA’s choice to decrease rates of interest in mid-February. Even higher news for these below mortgage stress is that so-called ‘core inflation’, also referred to as the ‘trimmed mean’, dropped into the RBA goal vary of 2-3% for the first time in December 2024 (2.7%) and stays there at 2.7% in February 2025.

“The signs are good there will be further interest rate cuts in the months ahead, as long as official estimates of inflation stay within the 2-3% target range. For these reasons we have modelled the impact on mortgage stress of a cut to interest rates of +0.25% in May to 3.85%.”

The information additionally revealed that the quantity of mortgage holders thought-about ‘Extremely At Risk’ of mortgage stress sits at 990,000 or 18.5 per cent, nicely above the long-term average during the last decade (14.7 per cent).

“It is important to appreciate that interest rates are only one of the variables that determines whether a mortgage holder is considered ‘At Risk’ – the largest impact on whether a borrower falls into the ‘At Risk’ category is related to household income – which is directly related to employment,” Levine stated.

“The employment market has been strong over the last two years (the latest Roy Morgan estimates show over 900,000 new jobs created compared to April 2022) and this has provided support to household incomes which have helped to moderate levels of mortgage stress over the last year.”