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.”
