Lockdown didn’t squeeze mortgage-holders as badly as many expected, but inflation might.
While 2021 wasn’t without its challenges for mortgage-holders, new data has revealed that mortgage stress metrics reached new lows during recent lockdowns.
According to research done by Roy Morgan, approximately 15.8 per cent of mortgage-holders were categorised as at risk during the three-month period ending September 2021.
While 584,000 mortgage-holders might sound like a big number, it’s significantly lower than mortgage stress levels seen during 2020.
Roy Morgan chief executive Michele Levine said that support from both state and federal governments and the financial sector helped cushion the impact of lockdowns this time around.
Ms Levine said that the biggest drivers of mortgage stress are typically unemployment levels and interest rates.
“The last year or so has seen low interest rates, but the real reason we see such low levels of mortgage stress is the government support and mortgage deferrals for those mortgage holders who would otherwise have been ‘At Risk’,” she said.
While the winding down of lockdown restrictions nationwide has generally been seen as a cause for celebration, Ms Levine noted that it could be a double-edged sword for some.
“This new period of ‘COVID-normal’ should mean no more lockdowns, but that also means there will be no more emergency support from federal and state governments and a big reduction in the financial support and mortgage deferrals provided by banks and financial institutions,” she said.
In addition, mortgage-holders may want to keep an eye on rising concerns around inflation.
The latest Roy Morgan Inflation Expectations tracker found that Australians expect annual inflation levels to reach approximately 4.8 per cent over the next two years.
If those fears come to pass, it will represent the highest level of year-on-year inflation since November 2014.
Ms Levine called the possibility of inflation a direct threat to the low-interest-rate environment of the Australian economy.
“If Australian inflation does increase substantially, that will put upward pressure on interest rates that will in turn lead to a higher level of ‘mortgage stress’ than we are currently seeing,” she said.
Speaking to sister site InvestorDaily earlier this year, AMP Capital chief economist Shane Oliver said local investors should be keeping an eye on rising inflation on the other side of the Pacific, and specifically how central banks react to it.
“It’s just a temporary surge, then you’ve got to pay attention to it, but it won’t have a long run impact on investment markets.
“If it’s a permanently higher rate of inflation, ultimately we’ll see permanently higher interest rates which could have a negative impact on share markets and other assets,” he predicted.