Mortgage default flood if rates rise today

There will be plenty of people praying that the economists who say rates will stay put are right, and that the Reserve Bank board decides to keep rates on hold this afternoon.

New data from Roy Morgan Research reveals that lifting interest rates by 25 basis points today would put 871,000 Australian homeowners at risk of falling behind on their mortgage payments. Roy Morgan estimates there are about 793,000 Australians currently in mortgage risk, which is defined as directing 30% to 45% of their household income into the mortgage.

Not surprisingly, mortgagees aged between 18 and 29 are most a risk of defaulting. Roy Morgan currently estimates 30.3% of mortgage owners are at mortgage risk, but says this would increase to 32.4% if rates were to rise.

The good news is that most economists are expecting rates to stay on hold today, particularly after yesterday’s weaker-than-expected retail sales figures hinted that the economy could be slowing faster than many had thought.

But a senior economist at ANZ, Katie Dean, says that while the retail sales data will allow the RBA to leave rates on hold today, yesterday’s TD Securities/Melbourne Institute monthly inflation gauge – which showed headline inflation lifted by 0.3% in May to an annual rate of 4.5% – suggests inflation may be yet to peak. “We maintain the view that an acceleration in CPI inflation in the June quarter will prompt the RBA to raise rates by 25bps in August.”

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