Hundreds of thousands of Australians are flooding financial crisis hotlines in desperate need of help, on the brink of losing their homes as they struggle with sky high mortgage repayments.

Rapidly rising interest rates and a worsening cost-of-living crisis have combined to create a perfect storm that experts say would wreak havoc on the economy, should one crucial saving grace disappear.

The National Debt Helpline, which offers free financial support by trained counsellors, received a staggering 105,000 calls in September, can reveal.

Ordinarily, mortgage stress doesn’t rate in the top five reasons for calls, a spokesperson said, but has been the number one cause for seeking help for the past four months.

It began climbing the ranks at the start of the year, the spokesperson said.

The majority of calls in September came from New South Wales, Queensland and Victoria, while overall volumes were up almost 30 per cent compared to the same time last year.

A number of financial crisis services spoke to reported similarly high levels of need from those with mortgages. One said the number of calls related to mortgage stress “has never been so high”.

A source from one service described the scenario playing out as having reached a “critical mass”.

If a large enough proportion of mortgages fail – that is, a flood of Aussies lose their homes by defaulting on their home loans – the source said: “We’d all be screwed.”

But, for now at least, lenders are “bending over backwards” to avoid that kind of devastating economic scenario playing out.

Data from the Australian Banking Association shows the percentage of borrowers falling behind on their repayments remains low, at less than one per cent.

By comparison, this figure was about 1.4 per cent in the early stages of the COVID-19 pandemic.

But one financial counselling source told that the surge of calls for help should be seen as a “canary in the coalmine”.

“While the banks say they aren’t seeing many problems, we reckon people are definitely struggling and many are scraping through, masking those problems by resorting to short-term credit – Buy Now, Pay Later and credit cards – to buy the basics,” one said.

“That’s something we’re pretty worried about, I have to say, as it’s a case of kicking the can down the road and the debts eventually come home to roost.”

The number of homes being listed for sale surged in September, up by 14.3 per cent, according to data released yesterday from SQM Research.

However, the number of ‘distressed listings’ – that is, homes for sale with keywords like “urgent sale” or “desperate seller” – rose only modestly by 1.3 per cent.

Like mortgage arrears figures, Leith van Onselen, Chief Economist at MC Fund and MB Super, and the co-founder of MacroBusiness, believes the data on distressed sales masks the real scenario.

“There probably has been a lot of forced sales, but they’re not being classified as such,” Mr van Onselen said. “People have run into trouble, listed their house for sale normally, and managed to get themselves out of jail.”

Contrary to some perceptions, the commercial interests of a bank and the personal interests of a mortgage holder are largely aligned, the ABA said.

Lenders will go to great lengths to assist borrowers who are experiencing financial difficulty, to keep them in their homes.

“Banks understand many people are doing it tough grappling with increases in their repayments as well as fuel and other living expenses,” an ABA spokesperson said.

In speaking with financial counsellors, heard countless anecdotes of lenders being “uncharacteristically flexible”, as one put it.

One borrower who was at rock bottom, who was clearly “never going to get on top of things”, was offered a $40,000 payment by their lender to sell their home and clear as much of their mortgage balance as they could.

Others in distress have been offered lengthy interest-free payment pause periods, up to 12 months for some.

The most valuable asset Aussie banks hold is their borrowers, Mr van Onselen explained.

“Two-thirds of banks’ lending is for residential property,” Mr van Onselen said. “The last thing they want is a situation where distressed sales surge.”

Should that occur, he said house prices would plunge, consumer and business confidence would be “hammered”, and the economy would be rocked.

“No-one wants a scenario where large numbers of people are losing their homes. That would be bad for everyone.”

Millions on the brink

Roy Morgan measures levels of mortgage stress each month and its latest figures for August paint a dire picture.

It found 30.2 per cent of all mortgage holders are now deemed ‘at risk’ of slipping into stress, which equates to a record-high 1.57 million borrowers.

On top of that, more than one-in-five are now ‘extremely at risk’, which is another 1.06 million borrowers.

“These figures are concerning enough, but if the RBA lifts interest rates further over the next few months – perhaps due to renewed inflationary pressures with energy and petrol prices so high – these numbers will continue to increase,” a Roy Morgan spokesperson said.

A survey conducted by financial comparison website Finder found one-in-seven Aussies fear being forced to sell their homes due to the cost-of-living crisis.

That equates to about 515,000 households who are stretched to their financial limits.

“Borrowers are experiencing a huge financial shock after a relentless climb in interest rates over the past year and homeowners aren’t coping,” Finder’s home loans expert Richard Whitten said.

“Many just can’t find potentially thousands of dollars more each month to service their home loans. They feel like they’ve got little choice but to sell up or lose their home.”

Finder’s Consumer Sentiment Tracker found two-in-five homeowners, or 39 per cent, struggled to pay their mortgage in August.

“Many borrowers have already pulled back on all non-essential spending as they have no money left to contribute to their mortgage,” Mr Whitten said.

After some 18 months of rising costs in virtually all facets of life, there are simply no non-essential expenses left to cut, he said.

The ABA said lenders have dedicated teams available to help borrowers in various ways, including by “restructuring loans, offering interest only payments, extending the term of a loan and offering payment deferrals”.

The ABA has also launched a Financial Assistance Hub offering information to those who are struggling to repay loans.

A middle class in crisis

Right across the country, charities that provide welfare support to those in need via food, financial support and clothing, are being inundated.

In New South Wales alone, St Vincent de Paul Society members have provided assistance to 86,000 people in the past year, with one-in-five requesting food assistance.

Almost half reported being in housing stress. One-in-three were asking for charitable help for the first time.

“We’re seeing a new demographic of people turning to charities for support over the past 18 months,” a Vinnies NSW spokesperson said.

“It has been very concerning to see a growing number of people in employment and families on dual incomes reaching out in a time of desperation because of the cost of living.

“Historically, the people who have sought assistance from our services have faced more acute and visible forms of hardship and homelessness, however in recent months the increasing demand for assistance from people in stable work has been quite alarming.”

The phenomenon of “working poor” is something that has been viewed as largely an American concept and something that could never happen in Australia.

That is no longer the case, the Vinnies NSW spokesperson said.

“We are seeing that alarming trend creep closer to home.

“Parents are choosing to scale down or completely skip their own meals so their children can eat. They are also choosing not to switch on heating or cooling facilities due to the increasing unaffordability of energy.”

Compounding difficulties is the fact that real wages have hone backwards for the better part of 18 months, Mr van Onselen said.

“So basically, household incomes are going backwards after inflation. Households are being squeezed because their real wages are falling and the cost-of-living is rising.

“They’re costs you can’t avoid. We’ve had really high energy price inflation, petrol prices are high, rents are up by double-digits across the country, and mortgage rates are up.

“It’s a nasty situation we’re in.”

Further pain to come

A large number of Aussies are hanging by a thread, with research by Canstar showing 69 per cent of mortgage holders are worried about their ability to keep making payments if interest rates rise again.

Eight per cent are already behind on their repayments and another 19 per cent who will simply not cope under the weight of further pressure.

“There is good cause for community-wide concern,” Canstar’s finance expert Steve Mickenbecker said. “Many borrowers feel they are on a cliff.”

Finder maintains a panel of 38 experts and economists who deliver their views on likely Reserve Bank movements each month via the Finder Cash Rate Survey.

Almost half of the panel expect another rate rise by the end of the year. The RBA board decided on Tuesday to leave the cash rate on hold this month.

Attention now turns to the board’s next monthly meeting on 7 November, with an increase not out of the question.

“If the September quarter inflation figure due to be released in late October shows a lack of progress towards three per cent, the Reserve Bank may be left with little option but to increase the cash rate,” Mr Mickenbecker said.

It’s not just the potential for further rate rises inflicting financial pain on households, but forecasts of instability in the jobs market.

Economists expect Australia’s unemployment rate to steadily rise over the coming 12 months, thanks to the slowing economy combined with strong labour supply growth via record-high immigration.

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