Household Survey – Page 46 – Digital Finance Analytics (DFA) Blog

The Top 10 Mortgage Stress Post Codes In The Melbourne Region

We continue our series on mortgage stress by looking at VIC, and with a focus on the Melbourne region. Using data from our surveys, 23.7% of households are currently in mortgage stress. This is above the national average of 21.3%. You can read about our methodology here. We assess individual household income and expenditure, and do not rely on a simplistic “35% of income rule of thumb” used by many others.

Here is the mapping around Melbourne, showing the relative count of households in stress.

Here is the list of the top 10 in the state. Berwick is a suburb 41 kilometres south-east of Melbourne’s central business district and has the highest count. Young growing families are the most strongly represented household segment, and they are under financial pressure thanks to costs of living, including child care. They have an average mortgage of $370,000, on relatively constrained incomes. The current median household income is $1,580 per week.

The next postcode, Essendon, is a suburb 10 km north-west of Melbourne’s central business district. Although a mixed community, young growing families are again under mortgage stress. Mortgages here, on average are larger, typically more than $600,000. the current median household income is $1,600 per week.

The third most stressed postcode is Narre Warren South, 40 km south-east of Melbourne’s central business district. This suburb has been expanding fast in the past decade, including many subdivisions. We classify households here as on the urban fringe and the average mortgage is $285,000. The current median household income is $1,330 per week.

We have gone into some detail here to illustrate that mortgage stress is multi-faceted, and the characteristics of households in stress varies considerably across postcodes.

Next time we look at Perth, and WA more broadly.

Two million Aussies are experiencing high financial stress

From The Conversation.

A new study shows two million Australians are experiencing high financial stress which prevents them from coping in difficult situations, for example, in paying unexpected expenses such as a big mobile phone bill or the fridge breaking down.

Adults face these sorts of scenarios frequently. When they arise, people usually turn to savings, a credit card, or a friend or family member to help out.

Our report, Financial Resilience in Australia, funded by the National Australia Bank, quantifies the amount of Australians: experiencing problems paying debts; meeting the costs of living; and accessing appropriate, affordable and acceptable financial products and services.

It also shows some Australians have trouble accessing social support in times of crisis and may have low levels of financial knowledge.

Our research measured financial resilience by the four key resources that support it: personal economic resources (such as savings), financial products and services (such as insurance), financial knowledge and behaviour (including financial literacy), and social capital (having social support in times of crisis, including friends and families).

Many Australians simply don’t have the resources to bounce back. For example, around:

One in two adults have limited to no savings

One in two only have a “basic understanding” of financial products and services

One in ten have unmet need for credit and/or insurance

One in five have limited or no social connections

One in 30 stated they needed but did not have access to any form of government or community support.

This has implications for the short and long-term impact on individuals and their families.

Who is most at risk?

Our research found secure housing, steady income, education, being employed and good mental health are strongly associated with financial resilience.

On average, financial resilience is significantly lower among people who are homeless, living in social housing, are short-term renters or live in student accommodation.

Financial resilience increases with the level of education and, unsurprisingly, people with very low personal incomes fare poorly.

Employment status is a key marker. People who are unemployed, underemployed, not in the labour force and those who only work odd jobs are more likely than their full-time employed counterparts to have lower levels of financial resilience.

People with a serious mental illness are significantly more likely to be in severe or high financial stress, are less likely to be financially secure and fare worse on each of the individual resource groups than people without mental illness.

The gender split in financial resilience is fairly even overall. However, the four components of financial resilience are influenced by gender. Women have lower general levels of economic resources than men, but men have lower levels of social capital than women.

People who were born overseas in a non-English speaking country have lower levels of resilience than those who were born in Australia. Finally, the influence of age on financial resilience varies and is often affected by other factors.

One in four study participants reported difficulties accessing financial services. The barriers are varied, but include cost, trust, poor and inadequate services, and (for a few) language, disability and discrimination.

This underscores the importance of making financial information, products and services more user-friendly and accessible. This will ensure these resources are available and accessible to everyone who needs and wants them in society.

The factors influencing financial security are not surprising. People who own their own homes, have a university-level education and have a personal yearly income of more than A$100,000, for example, have higher levels of financial resilience. However, only 35.7% of Australians are financially secure.

The prevailing attitude around financial problems is that individuals are solely responsible for their situation. Our research challenges this ideas as it shows multiple aspects to financial resilience, some out of the individual’s control.

The below shows how interlocked the different components of financial resilience are and when pieces of the puzzle are removed, the most vulnerable people are at risk.

At the moment social sector leaders are lobbying the government to scrap proposed budget cuts that will reduce the amount of certain welfare payments. Our research shows these same people have the least resilience to bounce back if they were to lose some financial support.

This is an example of how the government needs to play a more active role in understanding financial resilience and where support is needed. By understanding the often interrelated elements of financial resilience, tipping points and who is most at risk, prevention and intervention can be better tailored.

Authors: Rebecca Reeve, Senior Research Fellow, Centre for Social Impact, UNSW Australia; Kristy Muir, Professor of Social Policy / Research Director, Centre for Social Impact, UNSW Australia

The Top 10 Mortgage Stress Post Codes In The Adelaide Region

As we continue our analysis of mortgage stress, using data from our household surveys, today we look at South Australia. With 24% of households in mortgage stress across the state, this is one of the higher proportions in the country currently; thanks to limp income growth, higher unemployment and lower absolute income levels. Home prices have not move up so much, but then, the price to income and loan to income ratios are no less extreme than in other states.

Here is the map centred on Adelaide, showing the relative number of households we asses as being in mortgage stress.

Here is a list of the top 10 across the state. The highest concentration is in Paralowie, a suburb in the north of Adelaide, South Australia. It is predominantly a residential suburb. Many of the properties are valued in the range of 250-350k. We have this classified in our outer suburban zone, and the households are predominately battling urban. Next is Woodville West, another suburb of Adelaide, situated about 9 kilometers northwest of the Central Business District. It lies within the City of Charles Sturt. We classify this post code as urban fringe and the stressed household segment is mainly battling urban.

Next time we look at VIC.

The Top 10 Mortgage Stress Post Codes In The Brisbane Region

As we continue our series on mortgage stress, today we look in and around Brisbane. This includes the post code with the highest stress count across all Australia. Refer to our earlier posts for the definitions we use.

Here is the geomapping in and around Brisbane showing the relative number of households in stress by post code.

Here is a list of the top 10 across QLD. Depending on the location, the predominate segment varies quite considerably. Harristown, 4350 a suburb of Toowoomba is located to the southwest of the city centre and has the highest count of stressed households across Australia.

Many households have had little or no income growth, are having to cope with large mortgages, and some more affluent segments are finding rental stream growth from investment properties fading.

Next time we will cover postcodes in SA, then VIC and WA.

The Top 10 Mortgage Stress Post Codes In The Sydney Region

Continuing our series covering the latest Digital Finance Analytics mortgage stress analysis, today we look at the Sydney region. Despite low interest rates, many households are in mortgage stress. Here is a map showing the number of households we assess as being in mortgage stress by post code. There are more households in western Sydney in difficulty.

Here is the list of the top 10 post codes. The post code with the largest number of households in mortgage stress currently is 2650, Turvey Park. Of note is the household segment most represented here – namely mature, older households. In fact as you go down the top ten list, the striking observation is that various segments are represented, including young families, battlers, and older households.

When we examine the drivers of stress, three elements are working in combination to create the issues, despite ultra low interest rates. These households have high levels of debt, relative to income (large mortgages and credit card debt); their incomes are static or falling in real terms and child care costs are high, and increasing, compounding the high costs of living. We also note that a disproportionate number of households have loans dating from 2012-13, when lending criteria were more generous, and as a result, they have higher than average loan to value and loan to income ratios. Many would fail now to get the loan they have, based on current criteria and some are finding refinancing to cheaper loans difficult.

Next time we will look at Brisbane.

Two million Australians are financially vulnerable

Financial resilience is the ability to access and draw on internal capabilities and appropriate, acceptable and accessible external resources and supports in times of financial adversity.

The Centre for Social Impact (CSI) has released a report today that – in an Australian first – defines ‘financial resilience’ and reveals that 2 million Australians are experiencing a high level of financial stress or vulnerability.

The report Financial Resilience in Australia 2015 highlights the concept of resilience as a process that ‘enables individuals to bounce back after adverse events and experiences, adapt to changing circumstances, and deal with environmental stress.’ The report defines financial resilience as:

‘the ability to access and draw on internal capabilities and appropriate, acceptable and accessible external resources and supports in a time of financial adversity’.

Over the past five years CSI and NAB have worked in partnership to understand the level of financial exclusion in Australia. Over the past year, the two organisations have sought to redefine thinking beyond access to products and services and to provide a more robust and holistic approach to defining and measuring the level of financial health in Australia.

According to the report authored by researchers at the Centre for Social Impact, based at UNSW Australia, financial resilience is characterised by four components:

Economic resources

Access to financial products and services

Financial knowledge and behaviour

Social capital

“We know that just over 64 per cent of Australian adults are facing some level of financial stress and vulnerability and that one in four people have experienced difficulties accessing financial services in the past 12 months,” said Professor Kristy Muir, Research Director at the Centre for Social.

“These are alarming statistics and what is more troubling is that its people living in social housing, people with a mental illness and people born overseas in a non-English speaking background who are worst off.

“We have redefined thinking around financial inclusion and developed a comprehensive model of resilience that can be applied across the entire population – because financial shocks can happen to anyone, anywhere at any time,” said Professor Muir. “This gives us a much deeper understanding of people’s financial situations, the resources they need to withstand adversity and who in the population fares better or worse – and why.

“Understanding financial resilience provides a clearer understanding not just for individuals, but for socially responsible businesses, government agencies and policy makers, and anyone working with a mission to improve social outcomes, to identify where people are at risk and provide the right solutions at the right time.

“To write this report, we surveyed a representative sample of the Australian population and what we have found is alarming – that 2 million Australians are financially vulnerable, and that people faring worse are those in social housing, those with mental health challenges, and those with English as a second language or who don’t speak English at all,” said Professor Muir.

According to NAB’s GM of Corporate Responsibility Jodi Geddes, “Helping customers better prepare for life’s little and big surprises is an important part of what we do.”

“This research will help the general population better understand what they can do to improve their financial resilience and will inform an evaluation tool to help organisations better evaluate their programs aimed at addressing financial inclusion.” Ms Geddes said.

Mortgage Stress – It’s All About Granularity

We have updated the Digital Finance Analytics Mortgage Stress Analysis, to August 2016, using data from our household surveys. Contrary to what might be thought, whilst the ultra-low mortgage rates are easing the finances of some households, mortgage stress still exists, and it’s iron hand is being felt by more than 21% of households. But it is not equally spread across the population, so you need to get granular to see what is going on. Worth though noting the Roy Morgan data we reported already, estimated 18.4% of households were in mortgage stress, so some correlation.

Over the next few days we will drill into the details to highlight where the pain is most severe, but today we start with an overview.

Before we start, we define mortgage stress, not as a fixed percentage of income servicing the mortgage, rather we examine the household budget, comparing the income with outgoings, including mortgage repayments and other commitments. Those in mortgage stress do not have sufficient free funds to pay their mortgage on time, without difficulty. You can read more about our definitions of mortgage stress here.

Looking at the summary analysis, the largest proportion of households who are borrowing and in mortgage stress reside in TAS and SA, then VIC, WA; all above the national average. QLD and NSW are below the average, along with NT.

In total there were 769,592 households nationally in stress. Looking at the number of households in stress by state however, NSW has the largest number with 244,119.

Turning to our household segments, those in the disadvantaged fringe and young growing family groups are the most strongly represented.

But, expressed as a percentage of segments in stress, young growing families are most exposed, with 41% in mortgage stress, slightly ahead of battling urban 36.7% and disadvantaged fringe 36%. Young affluent, stressed seniors and wealthy seniors were the least stressed.

Finally, here is the top 30 or so, nationally. The most stressed post code in Australia at the moment is 4350, Harristown, with more than 7,000 households in difficulty. Note too that those at the top of the list are not necessarily as expected. Some older and more affluent segments are also being hit.

Next time we will look in more detail at some of the states, and discuss the underlying causes of mortgage stress. But for now, it is clear that mortgage stress is still a very significant economic factor.

Trading Down Households Drive The Property Market

This is the final post in our series which updates the latest Digital Finance Analytics Household Surveys. This is data which will feed into the next edition of our flagship publication “The Property Imperative“. The March edition of which is still available on request.

Having looked at first time buyers and investors, today we look at households already owning a property. One important group are down-traders. This segment, of more than 1.2 million households have an existing owner occupied property. Many will have paid down their mortgage, and will have enjoyed significant capital gains in recent years. Now they want to sell, and buy something smaller, and sometimes also an investment property.

There are two key drivers. First, one third are driver by a desire for more convenient living (perhaps a smaller or no garden, or a move into an apartment, or somewhere with better public transport and services). Next we find one third transacting in connection with planning for retirement. Around 20 per cent are looking to switch their investments into property, whilst others are dealing with the death of a spouse or other factors. In total this group is a very significant influence on the market, with an appetite for quality apartments.

Next we look at up-traders. This is a significant, smaller, but important group, seeking to purchase a larger, and probably more expensive property. One third are driven by a desire for more space, but more – close to 45 per cent – are influenced by the prospect of capital appreciation, so a purchase is more an investment-related decision. Others are influenced by a life-style change, or a change in employment.

Then finally, we look at those seeking to refinance an existing loan. This is a large and significant group, which are being teased by ultra low rates and special offers. The most important reason to refinance is to reduce monthly payments, no surprise given flat income growth, and large loans. However, around 15 per cent are motivated by the opportunity to realise capital gains created by recent price growth. This flow of funds may go towards a holiday, building works, or other purchases, or to pay off other debts.

When we analyse the drive to refinance by loan size, we see that those with larger loans are more driven by cash release, whilst those with smaller loans are more concerned about reducing payments. We also note that brokers are more directly involved in the refinance of larger loans.

Typically, the refinanced loan will sit in the $250-500k range

Finally, we found that larger loans, even now, were more likely to be refinanced to interest only, rather than a principal and interest loan.

This concludes the latest updates. We will continue to run the surveys, and we expect to publish the next edition of The Property Imperative, with the latest results, in September or October this year.

The Ongoing Allure of Investment Property

We continue the results from the latest Digital Finance Analytics household surveys, by looking at property investors, who now make up around 35% of all residential property borrowers. This is much higher than in any other similar economy (e.g. UK 17%). The appetite for investment property is still strong, and despite some tightening of lending criteria and slowing capital growth momentum, investors still wish to transact. Bank lending to investors in June 2016 rose by 0.1% or $0.6 billion.

As a reminder, we showed that investors (either those with one or two properties – solo investors, or those with a portfolio of properties – portfolio investors) were the most likely to purchase, even compared with those seeking to refinance.

The driver to transact relate firstly to the tax effectiveness of the investment (37%) and capital gains from appreciating property values (25%). Low finance rates are helping, and investment property is perceived as offering better returns than bank deposits or stocks. We know that many in the eastern states will not make positive pre-tax returns, but taking tax breaks into account, they are still ahead, and will remain so unless there is a significant fall in home prices.

There are some barriers which investors have to negotiate, the most obvious is they have already bought (40%), potential changes to regulation (25%), and inability to get financing (15%). Risks relating to budget changes have dissipated, and some are concerned about static or falling rents (bundled in the other category at around 5%).

Solo investors have similar drivers with a focus on tax efficiency and potential capital gains, supported by low finance rates. We note that they have lower expectations of future gains than other investors (portfolio and those investing via SMSF).

Looking in detail at SMSF property investment, tax effectiveness, leverage and potential capital gains all drive the decisions. We did note some concerns about changes to superannuation regulation, especially around the caps, but this has not deterred prospective purchasers.

There are about four percent of SMSF’s holding residential property, and typically it comprises just a proportion of the total fund. A further three percent are actively considering adding in property to their SMSF.

It is also worth noting that mortgage brokers are becoming more influential in providing advice to trustees seeking SMSF advice, alongside accountants. Internet forums and web sites still play a significant role in providing advice to trustees. 17% say they know enough, and rely on their own knowledge and experience.

Finally, we highlight the “honeypot effect”, where interstate investors prefer to buy in the more buoyant states of NSW and VIC, than in their home states. We discussed this in detail in a previous post. And of course some first time buyers are going direct to the investment sector.

So, investors will continue to sustain the market, and should the RBA cut rates again tomorrow, we should expect additional momentum, thanks to lower funding costs and paltry returns from bank deposits. Property investors are making logical decisions, given past performance, but at some point the tide just has to turn. But at the moment, returns from property simply outperforms other investment classes, and are perceived to be “as safe as houses”.

Next time we will round out the survey results by looking at some of the other property active segments.

First Time Buyers Still Determined But Under The Gun

Continuing our series on the latest Digital Finance Analytics household survey results, today we turn to those wishing to enter the property market for the first time.

Looking briefly at those wanting to buy, but are not able to at the moment (about 1.1 million households, down from 1.3 million last year), whilst fear of unemployment and interest rate rises continue to dissipate, home prices are just too high relative to their income, to consider market entry. This is also influenced by their costs of living, and an inability to get finance. We also note a rise in “other factors”, which include needing to get finance help from family or friends.

Turning to those actively seeking to enter the market in the next year for the first time (about 312,000 households), we see that more are motivated by potential future capital growth than needing a place to live. In addition, tax advantage was cited by around 15 per cent of first time buyers as a key driver, whilst access to the first home owner grant has become ever less important.

Looking at the barriers to purchase, first time buyers say that high home prices remains the most significant barrier, and as a result just finding a place to purchase is a challenge. Whilst fear of unemployment and the impact of rising interest rates have reduced, more are saying that availability of finance is an issue now as lending criteria are tightened.

Well over 20 per cent of first time buyers are not sure what, or where they will buy. More are likely to buy a unit than a year ago, and less likely to buy a house.

We also continue to see a proportion considering buying an investment property, perhaps a cheaper property in an area they do not want to live in, as a way to enter the market, and participate in potential capital growth. This may be the key to an owner occupied purchase later.

We publish monthly data on the number of first time buyers who go direct to the investment sector from our surveys and overlay this on the ABS data. Around 4,000 are buying each month. The ABS data also shows the number of first time buyers is rising, to May 2016, though still well below the peak.

Next time we will do a deep dive on the investment property sector.