Digital Finance Analytics – Quenching The Thirst For Accurate Household Mortgage Data

Digital Finance Analytics Core Market Model is now being used by a growing number of financial services companies and agencies who want to understand the true dynamics of the current mortgage market and the broader footprint of household finances across Australia.

The DFA Approach

By combining our household survey data, with private data from industry participants as well as public data from government agencies we have created a unique statistically optimised 52,000 household x 140 field resource which portrays the current status of households and their financial footprint. Because new data is added to each week, it is the most current information available. We also estimate the extent of future mortgage defaults, thanks to the data on household mortgage stress.

Posts on the DFA blog uses data from this resource.  Momentum in our business has picked up significantly as concerns about the state of household finances grow and the thirst for knoweldge grows. We plug some of the critical gaps in the currently available public data which is in our view both limited and myopic.

A Soft Sell

The complete data-set is available purchase, either as a one-off transaction, or by way of an annual subscription which includes the full current data plus eleven subsequent monthly updates.

Other clients prefer to request custom queries which we execute on a time and materials basis.

In this video you can see an example of the core model at work. We show how data can be manipulated to get a granular (post code and segment) understanding of the state of play.  This is important when the situation is so variable across the states, and across different household groups.

We Hold Granular Data

  • Household Demographics (including age, education, structure, occupation and income, location, etc.)
  • Household Property Footprint (including residential status, type of property, current value of property, whether holding investment property, purchase intentions, etc.)
  • Household Finances (including outstanding mortgages and other loans, credit cards, transaction turnover, deposits, superannuation and SMSF, and other household spending)
  • Household Risk Assessment (including loan-to-value, debt servicing ratio, loan-to-income ratio, level of mortgage stress, probability of default, etc.)
  • Household Channel Preferences (including preferred channel, time on line, use of financial adviser, use of mortgage broker, etc.)
  • Segmentation (derived from our algorithms; for household, property, digital and others)

Request More Information

You can get more information about our services by completing the form below, where you can also request access to our Lexicon which describes in detail the data available.

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The Property Imperative Weekly 12th May 2017

The latest edition of our weekly digest is published today. In the week the big banks copped it in the budget, and investor borrowing momentum is predicted to slow, we look at events over the past seven days. Watch the video, or read the transcript.

We start with the main announcements in the Budget. First there is the $6 billion liabilities levy to be imposed on the big four banks and Macquarie. Whilst many were surprised by this move, the fact is that banks around the world are getting hit with various taxes and levies and we have some of the most profitable banks in the world, not because they are really expert managers, but because of the structural issues which exist here.

Most of the tax grabs around the world are aligned to providing extra support in case a bank failures, but others are now using the income to support general government spending. In some ways the banks are easy targets, given their massive incomes, and poor public perception, but in our view the move looks more like a late tax grab to fill a hole than clear sighted policy. Of course the banks squealed, whilst smaller players suggested it might help to level the competitive playing field. Banks have so many ways to recover such an impost, that despite the mandate given to the ACCC to monitor price changes, we think consumers and small business will pay, and so it is really just another indirect tax. The Government linked the move to the earlier Financial System Inquiry as part of making Banks “Unquestionably Strong”, but this is a long bow.

We think the other developments relating to banking in the budget are perhaps more significant. APRA is to be given extra powers to supervise the growing non-bank sector, which may help to cool the supply of higher risk mortgages. Bank executives will be on a register and risk being delisted if they do the wrong thing. This is all about tightening the bank system further, and it makes good sense. It also represents a vote of no-confidence in their self-managed campaigns to improve the culture in banks, and which do not necessarily get to the heart of the issues which need to be addressed.

But it is the Productivity Commission review of the financial system, and especially the issues around vertical and horizontal integration which may have the most profound impact. Today, the large financial conglomerates control hosts of financial advisers and mortgage brokers, as well as branch networks and other channels, and play across the spectrum from retail banking, through wealth management and Insurance. But such integration means that smaller players cannot compete, and large players are able to dictate prices across the system. As a result, Australians are paying more for their financial services than they should, many sectors are making excess profits, and competition is just not working. So the big question becomes, will the Productive Commission get to the heart of the issues, and can the financial services omelette be unscrambled?

Going back to the levy for a moment, we cannot figure why Macquarie is caught along with the big four, who are classified by APRA as Domestically Significant Banks or D-SIBS. The basis of selection appears to be a quick back of the envelope assessment of the size of liabilities (less consumer deposits below $250k and Basel Capital).  The fact is the major banks have an implicit government guarantee that in case of emergency they would be bailed out. As a result, they can raise funds more cheaply. This is worth way more than the 6 basis points of the levy, so you could argue they are getting off cheaply.

The first half  results from Westpac were good in parts, but although declared profit was up, this was thanks mainly to trading income which may not be repeatable, whilst net interest income was down 4 basis points and consumer provisions were higher. Again consumer debt in Western Australia was an issue. The number of consumer properties in possession rose from 261 a year ago to 382 in Mar 17. Investment property 90+ day delinquencies rose from 38 basis points to 47 basis points. They hope the recent mortgage repricing will help to repair their net interest margin in the second half.

CBA who reported its Q3 trading update also said margin was under pressure and defaults in WA were higher.

We published our top ten post codes with households at risk of mortgage default, and Western Australia came out the worst. In top spot, at number one, is 6210, Mandurah. This also includes suburbs such as Meadow Springs and Dudley Park. Mandurah is a southwest coast suburb, 65 kilometres from Perth. The average home price is around $300,000 and has fallen from $340,000 since 2014. Here there are 1,430 households in mortgage stress but we estimate 388 are at risk of default in the next few months.

Our surveys also highlighted that financial confidence slipped in April, with investor households a little less confident, and our surveys also showed that less property investors are planning to purchase property in the next 12 months, thanks to the impact of higher mortgage rates and less availability of finance. Our core model suggest that investor loan growth is set to fall from around 7% down to 1 to 2 % in coming months. This will have a profound impact on the property market and the banks.

It may also impact the stamp duty flowing to most states. Data this week highlighted that taxation revenue from housing continued to climb. State and local governments collected about 52% of their total taxation revenue from property, a record which was worth almost $50 billion. So if property momentum does sag, there are significant economic consequences.

We also saw a sag in retail spending and in new building approvals, more evidence that the economy is on a knife edge. However, Auction clearance rates were still strong though, if on lower volumes and job adverts were stronger too, so it’s not all bad news.

And finally back to the budget and its approach to housing affordability. There was a raft of measures announced, some focussing on land release and other supply measures, as well as the option to save for a deposit in a super account tax shelter, and the ability for down-traders to put proceeds back into their super accounts (but no extra tax breaks there). One headline-grabber was the creation of a new entity, the National Housing Finance and Investment Corporation. This will source private funds for on-lending to affordable housing providers to finance rental housing development. However, the bigger issue for the sector remains federal and state funding.

There were very minor tweaks to the negative gearing tax breaks which may adversely hit investors in regional areas, but the perks remain pretty much intact. In fact, if you add up all the measures, we do not think they will fundamentally solve the housing affordability conundrum.

And that’s the Property Imperative Week. Check back next time for more news.

Property Investor Appetite IS on the Slide

OK, I am calling it. Looking at the recent data from our household surveys, property investor appetite is indeed on the decline. Here is the trend chart showing responses in recent weeks.

There were a couple of wobbles, reflecting the heightened speculation about negative gearing and capital gains changes, but there is now a consistent drift lower.

Actually when you look at the root cause of this, it is not so much changes in future expectation of capital growth, it is all to do the availability and price of loans. More than 22% now say they cannot get funding (due to tighter underwriting standards and less access to interest only loans) plus some concerns about future interest rate rises.  Concerns about changes in regulation have reduced.

So we expect to see a slowing in the investor credit lending trends. In fact in our core modelling, we are think investor lending could slow to 1-2% p.a. growth ahead. Very different from the trends the RBA showed recently (see below). This would have a significant impact on lenders growth and profitability.

 

Household Finance Security Wobbles Again In April

Today we release the latest monthly edition of our household finance confidence index for April 2017, which show a fall from 102.5 to 101.5, just above the neutral setting.

The index is drive from the results of our household surveys, and highlights some important movements, mostly related to the recent changes in the property market.

Property Investor levels of confidence weakened, thanks to rising mortgage interest rates and concerns about property prices and pre-budget speculation about changes to negative gearing. In fact owner occupier households are now more confident than investors. As usual households without property interests have a significantly lower level of confidence about their financial status.

The results by state shows that NSW leads the way, with households there still enjoying the glow of stronger employment and economic growth, to say nothing of high home prices. More people of course own property than not. VIC continues to weaken, costs of living appear to be accelerating there (especially child care and school fees, plus energy and council rates). Most other states saw a small rise, though from a position below the 100 neutral point. The divergence across the states is becoming more extreme.

Looking at the scorecards, whilst job security is about the same, households were less comfortable with their savings, and debt. Mortgage rate rises are working their way through, and many households with deposits in the bank are still seeing lower returns.

Falling real incomes are a strong factor in the mix, together with rising costs of living. these combined explain the rise in mortgage stress. Net worth is still improving thanks to home price appreciation, other than in WA, regional QLD and TAS.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

 

Mortgage Stress On The Radio

I had the chance to discuss our latest mortgage stress research with Jon Faine on ABC Radio Melbourne today.

The ABC also did an on-line segment based on the interview:

Almost 52,000 Australian households are at risk of defaulting on their mortgages in the next 12 months and a quarter of home owners are under home loan stress, a data analyst has said.

Key points:

  • Mortgage stress now spreading to more affluent areas, researcher says
  • Half of people under financial strain don’t have a budget, survey finds
  • WA, Victoria and Queensland leading the way on default risk

According to Digital Finance Analytics (DFA), 767,000 households were in mortgage stress in April, meaning they had little leeway in their finances, up from 669,000 the previous month.

Of those, it said 32,000 were in severe stress and unable to meet repayments with their current income.

It estimated almost 52,000 households were at risk of defaulting in the next year.

“It’s a concerning trend, and it’s a growing trend, and essentially there’s quite a smattering [of households under stress] across the country,” DFA’s principal Martin North told ABC Radio Melbourne.

    “What’s significant about the research is it isn’t just in the usual suspects, in other words the mortgage belt, the battling areas you might expect.

“We’re seeing households in all sorts of different areas now experiencing quite some difficulty in just managing their mortgage repayments.”

Traditionally well-off suburbs like Hornsby in Sydney, Brighton in Melbourne and Mount Claremont in Perth were also seeing high levels of stress.

The data was drawn from household surveys conducted by DFA, data from the Reserve Bank, the Australian Bureau of Statistics and APRA.

WA, Victoria lead the way on default risk

Of the 20 postcodes with the most risk of default, the majority fell in WA, followed by Victoria and Queensland.

Mr North said in New South Wales mortgage stress was spread out in a number of different areas, compared to Victoria’s, which was more concentrated in its booming growth suburbs.

Postcodes with high default risk:

  • WA – Mandurah, Wanneroo, Canning Vale, Beeliar
  • VIC – Derrimut, Point Cook, Werribee, Cranbourne, Craigieburn
  • QLD – Mackay, Carrara, Nerang, Hervey Bay, Toowoomba

    In those states, and around Brisbane, stress was related to flat incomes, big mortgages and rising costs of living exacerbated by investors.

    “While the economic indicators are reasonably good in Victoria, if you actually look at real incomes, they are actually not great. The cost of living is growing faster in Victoria than elsewhere,” he said.

In NSW, high home values have pushed up repayments. Mr North also highlighted high childcare costs as a particular problem.

“In WA, we’ve got prices falling significantly and unemployment rising. It’s pretty scary what’s happening there,” he said.

In some parts of Queensland it’s a similar story to the west. Home values, employment and incomes are falling in the resource-heavy areas like Mackay and the Bowen Basin.
What should you do if you’re in mortgage stress?

Mr North said there were a few things you could do if you were struggling, or to avoid getting into trouble.

Set out a clear budget so you know what you’re spending on
Prioritise what you spend money on
Go to the bank for help

“Only half the households we surveyed actually have a formal household budget, so they know what they’re spending and what they’re earning, and some people don’t want to look and some never bother,” he said.

“Make some choices about where to spend your money. Some people would say things like high-speed internet connectivity on your phone and all those sorts of things are really critical. But is it as critical as paying that mortgage?”

He said banks were obligated by law to help those struggling with their repayments.

    “Many people think it’ll be OK and just muddle on through, what I would say is if you’re in difficulty have a conversation with your bank and see what can be done,” he said.

“But many people muddle along for too long and get to a point where they have no choice but to sell.”

Big loans, flat wages driving financial troubles

Mr North said household debt in Australia was higher than ever before, combined with the growing cost of living.

“Prices have been rising significantly and people have been reaching for ever-larger mortgages to get into the market, so people have fundamentally bigger debts than previously,” he said.

“What we’re finding is things like childcare costs, school fees, rates, all those things have gone up a lot and then the fact that these larger mortgages, because prices have gone up, are being impacted by interest rate rises.

“Don’t underestimate the small, incremental interest rate rise translating into quite a big dollar-a-month increase when you’ve got a big mortgage.”

Mr North said the issues stemmed from the combination of underemployment and stagnant wages.

“In the early 2000s when we had very strong property price growth and mortgage growth we had very, very strong income growth to match, so essentially things worked OK,” he said.

“But this time around we’ve got a combination of very large mortgages, but income [is] static or falling in real terms and that’s the difference.

“What that means is this is not going to get worked out anytime soon, so all this talk about housing affordability and helping new people get into the market are missing the key point.

“These are people in the market now with their properties, dealing with these mortgages, dealing with the day-to-day issues of trying to manage their finances and it’s really tough.”

Wealthy feel pinch of housing costs as one in four Australians face mortgage stress

From The Guardian Australia.

The burden of housing costs is biting even in Australia’s wealthiest suburbs as an unprecedented one in four households nationally face mortgage stress, according to the latest in a 15-year series of analyses.

Households in Toorak and Bondi, prestigious pockets of affluence in Australia’s biggest cities, have made the list of those struggling to meet repayments amid rising costs and stagnating wages, research firm Digital Finance Analytics has found.

The firm’s principal, Martin North, said it was surprising new evidence showed that financial distress from property price surges reached beyond “the battlers and the mortgage belt” and was a “much broader and much more significant problem”.

The survey, which analyses real cash flows against mortgage repayments, finds more than 767,000 households or 23.4% are now in mortgage stress, which means they have little or no spare cash after covering costs.

This includes 32,000 that are in severe stress, meaning they cannot cover repayments from current income.

The firm predicts that almost 52,000 households will probably default on mortgages over the next year. Risk hotspots include Meadow Springs and Canning Vale in Western Australia, Derrimut and Cranbourne in Victoria, and Mackay and Pacific Pines in Queensland.

Overall, New South Wales and Victoria, whose capital cities have seen a recent surge in home prices, accounted for more than half the probable defaults (270,000) and households in mortgage distress (420,000).

North said the numbers were “an early indicator of risk in the system”.

The underlying drivers were “flat or falling wage growth”, much faster rising living costs and the likelihood mortgage interest payments would only go up.

Widespread mortgage burdens were limiting spending elsewhere and “sucking the life out of the economy”, and the problem should be addressed to head off a housing crash and its repercussions, North said.

“If we start seeing house prices slipping then this can turn into a US 2007 scenario rather quickly,” he said.

North is not alone in highlighting household vulnerability. The Reserve Bank of Australia’s financial stability review last month observed one-third of Australian borrowers had little or no mortgage “buffer”, which North said was “the first time they’ve ever admitted it”.

Finder.com last week found 57% of mortgagees could not handle a rise of $100 or more in monthly repayments.

“The surprising thing is that people in Bondi in NSW, for example, or even young affluents who have bought down in Toorak in Victoria are actually on the list [of mortgage stressed],” North said.

“The reason is they’ve bought significantly large mortgages to buy a unit, modified or brand new.

“They’ve got bigger incomes than average but essentially they are highly leveraged so they have little wiggle room and of course any incremental rate rise, because they’ve got such big mortgages, slugs them pretty heavily.”

Semi-retirees who moved to central coast NSW but are still exposed to large mortgages while their incomes were falling away were another atypical snapshot of those in financial distress, North said.

“And the people at the top, the most affluent households, the ones who’ve got really big properties, have the lifestyles to match. So again, their spare cash is not huge.

“And that point – it isn’t just the mortgage belt, it isn’t just the typical battlers who are actually exposed here – shows is a much broader, more significant problem.”

Brokers have ‘important role to play’ for stressed households

From The Adviser.

Mortgage brokers have an important role to play for the increasing number of households experiencing mortgage stress, as they are a “very good source of advice” according to a market analyst.

Around 52,000 households are now at risk of default in the next 12 months, according to mortgage stress and default modelling from Digital Finance Analytics for the month of April.

The modelling revealed that across the nation, more than 767,000 households are now in mortgage stress (669,000 in March) with 32,000 of those in ‘severe’ stress. Overall, this equates to 23.4 per cent of households, up from 21.8 per cent on the prior month.

Speaking to Mortgage Business, Digital Finance Analytics principal Martin North remarked that mortgage brokers have a role to play for stressed households in terms of helping them “find their way through the maze”.

“Maybe that’s a restructure, maybe it’s a different type of loan… I think [brokers] are a very good source of advice for households and for people who come and seek guidance [for example] refinancing may help,” Mr North said.

In saying this, Mr North noted that when it comes to identifying an appropriate loan for customers, brokers should remain “conservative” in their estimation of what households can afford.

“Don’t encourage households to borrow as big as they can. That 2 to 3 per cent buffer is really important, and those spending and affordability calculations are really important.

“There’s an obligation both on brokers and on lenders to do due diligence on borrowers to make sure that they’re not buying unsuitably, and that includes detailed analysis of household expenditure.

“My observation is that some of those calculations don’t necessarily get to the real richness of where households are at, so I think that all those operating in the market need to be aware of the fact that how we look at spending becomes really important on mortgage assessments.”

Mr North added that brokers should operate on the assumption that rates and the cost of living will continue to rise, while incomes remain static.

“So, don’t try and flog that bigger mortgage,” he recommended. “I would say be conservative in your advice and the structure of the conversation you have.”

The latest results of Digital Finance Analytics’ mortgage stress and default modelling are “not all that surprising”, Mr North said, considering that incomes are static or falling, mortgage rates are rising, and the cost of living remains “very significant” for many households.

“All those things together mean that we’ve got a bit of a perfect storm in terms of creating a problem for many households,” he said, adding that for many households, any further rises in mortgage rates or the cost of living would be sufficient to move them from ‘mild’ to ‘severe’ stress.

“It doesn’t take much to tip people over the edge. It takes about 18 months to two years between people getting into financial difficulty and ultimately having to refinance or sell their property or do something to alleviate it dramatically, so I think we’re in that transition period at the moment as rates rise… over the next 12 to 18 months my expectation is that we would see mortgage stress and defaults both on the up.”

According to Mr North, Digital Finance Analytics’ data uses a core market model, which combines information from its 52,000 household surveys, public data from the RBA, ABS and APRA, and private data from lenders and aggregators. The data is current to the end of April 2017.

The market analyst examines household cash flow based on real incomes, outgoings and mortgage repayments. Households are “stressed” when income does not cover ongoing costs, rather than identifying a set proportion of income, (such as 30 per cent) directed to a mortgage.

What The Mortgage Stress Data Tells Us

Following the initial release yesterday, and the coverage in the AFR, today we drill down further into the latest mortgage stress results.

By way of background, we have been tracking stress for years, and in 2014 we set out the approach we use. Other than increasing the sample, and getting more granular on household finance, the method remains the same, and consistent. We can plot the movement of stress over time.

Remember that the recent RBA Financial Stability review revealed that 30% of households were under pressure with no mortgage buffer, and a recent Finder.com.au piece suggested more than 50% were unable to cope with a $100 a month rise. So we are not alone in suggesting households are under greater financial pressure.

For this analysis we plot the number of households in mild stress (making mortgage repayments on time but tightening their belts so to do); severe stress (insufficient cash flow to pay the mortgage), and also an estimation of the number of households who may hit a 30-day default within the next 12 months. This is calculated by adding in a range of economic overlays into the stress data. This is all done in our core market model, which contains data from our rolling surveys, private data from lenders and other sources, and public data from the RBA, APRA and ABS.  This model is unique in the Australian context because it runs at a post code and household segment level, allowing us to drill into the detail. This is important because averaging masks significant variations.

The analysis shows that there are more severely stressed households in NSW than other states, and that around 13,000 households risk default in the next year, a similar number to VIC. WA is third on this list, with the number of defaults lower elsewhere.

Another lens is by the locations of households, in the residential zones around our major cities. The highest risk of default resides in the our suburbs, where a higher proportion of households are in severe stress. Households in inner regional Australia are next, followed by the inner suburbs, where again more households are in severe stress.

Our core household segmentation shows that the highest count of defaults are likely among the suburban mainstream, then the disadvantaged fringe, followed by mature stable families and young growing families. It is also worth noting that the young affluent and exclusive professional, the two most affluent segments contain a number of severe stressed households. This have larger mortgages and lifestyles, but not necessarily more available cash.

Finally, for today, here is the mapping across the regions. No surprise that the largest number of stressed households are in the main urban centres of  Melbourne and Sydney.

Next time we will look at post codes across the country.

 

Mortgage Stress And Default Probability Rise Again In April

Digital Finance Analytics has released new mortgage stress and default modelling for Australian mortgage borrowers, to end April 2017.  Across the nation, more than 767,000 households are now in mortgage stress (last month 669,000) with 32,000 of these in severe stress. This equates to 23.4% of households, up from 21.8% last month. We also estimate that nearly 52,000 households risk default in the next 12 months.

This analysis uses our core market model which combines information from our 52,000 household surveys, public data from the RBA, ABS and APRA; and private data from lenders and aggregators. The data is current to end April 2017.

We analyse household cash flow based on real incomes, outgoings and mortgage repayments. Households are “stressed” when income does not cover ongoing costs, rather than identifying a set proportion of income, (such as 30%) going on the mortgage.

Those households in mild stress have little leeway in their cash flows, whereas those in severe stress are unable to meet repayments from current income. In both cases, households manage this deficit by cutting back on spending, putting more on credit cards and seeking to refinance, restructure or sell their home.  Those in severe stress are more likely to be seeking hardship assistance and are often forced to sell.

Martin North, Principal of Digital Finance Analytics said “Mortgage stress continues to rise as households experience rising living costs, higher mortgage rates and flat incomes. Risk of default is rising in areas of the country where underemployment, and unemployment are also rising. Expected future mortgage rate rises will add further pressure on households”.

“Stressed households are less likely to spend at the shops, which acts as a drag anchor on future growth. The number of households impacted are economically significant, especially as household debt continues to climb to new record levels. The latest housing debt to income ratio is at a record 188.7* so households will remain under pressure.”

“Analysis across our household segments highlights that stress is touching more affluent groups as well as those in traditional mortgage belts”.

Regional analysis shows that NSW has 211,000 households in stress, VIC 209,000, QLD 139,000 and WA 109,000. The probability of default has also risen, with more than 10,000 in WA, 10,000 in QLD, 13,000 in VIC and 14,000 in NSW. Probability of default extends the mortgage stress analysis by overlaying economic indicators such as employment, future wage growth and cpi changes.

We will look at the data in more detail over the next few days and then drill down to some of the worst hit post codes.

*RBA E2 Household Finances – Selected Ratios Dec 2016.

Record numbers under mortgage stress

From The Australian Financial Review.

Record numbers of Australian households face mortgage stress as large loans and rising interest rates start to bite, according to detailed analysis of lending, repayments and household incomes.

Affluent suburban postcodes feature among an estimated 1000 households a week expected to face mortgage default over the next 12 months, the analysis reveals.

“Debt stress momentum is unprecedented,” according to Martin North, principal of research firm Digital Finance Analytics, who has been doing the survey for more than 15 years.

“This is not just about mortgage battlers. It is also hitting the households with bigger incomes and more leverage. It is worrisome,” Mr North said. Numbers of borrowers in severe distress has increased by about one-third to about 32,000 in the past 12 months, he said.

Concern that 767,000 households – or one-in-four across the nation – are facing financial distress follows last month’s warning by the Reserve Bank of Australia about increasing family “vulnerability” caused by soaring property prices, particularly in Melbourne and Sydney.

Reserve Bank assistant governor Michele Bullock said regulators may be forced to impose even heavier restraints on lenders to prevent the property market becoming the trigger for a disruptive financial crisis, said Reserve Bank assistant governor Michele Bullock.

Ms Bullock conceded that the effect of so-called macroprudential regulations imposed on the banks in 2015 to curb investor lending may be fading.

It also follows the Australian Securities and Investments Commission discovery that about 1.5 million recent loan applications matched minimum financial requirements, triggering concerns about lax lending standards.

Other prudential regulators are warning about the need to control interest-only lending because of concerns borrowers’ lack strategies for repaying principals, increasing vulnerability to financial stresses.

Digital Finance Analytics’ report is based on information from 52,000 household surveys and public data from the Reserve Bank of Australia, Australian Bureau of Statistics, Australian Prudential Regulation Authority and information from lenders and aggregators, which are companies that act as intermediaries between mortgage brokers and lenders.

Households are “stressed” when income does not cover ongoing costs, rather than identifying a percentage of income committed to mortgage repayments, such as 30 per cent of after-tax income.

Those in “severe distress” are unable to meet repayments from current income, which means they have to cut back on spending or rely on credit, refinancing, loan restructuring or selling their house.

Mortgage holders under “severe distress” are more likely to seeking hardship assistance and are often forced to sell.

“Stressed households are less likely to spend, which acts as a drag anchor on future economic growth,” said Mr North. “The number of households impacted are economically significant, especially as household debt continues to climb to new record levels.”

However lenders would be expected able to ride out a spike in arrears because they can foreclose on properties whose value has been inflated by unprecedented price growth.

State government budgets in the nation’s most populous states and territories have been boosted significantly by stamp duty charged on property transactions.

About 32,000 households are in severe distress, the analysis reveals. An additional 10,500 households in the suburban mainstream are in risk of default.

Other vulnerable community segments at risk of default include young growing families, the highly leveraged young ‘affluent’.

Most lenders are increasing rates for investors and toughening lending terms and conditions by increasing deposits and demanding more evidence that loans can be comfortably serviced by borrowers.

Commonwealth Bank of Australia, Westpac, National Australia Bank and Australian and New Zealand Banking Group have all raised investor rates in recent weeks.

Lenders are describing their strategy of slugging interest-only investors and easing pressure on principal and interest borrowers as the “new normal” because it differentiates between classes of borrowers as directed by regulators.