Tag: Mortgage Stress

Mapping The Mortgage Stressed Households In Greater Adelaide

Following our October 2017 Mortgage Stress update, here is a map of the count of households in mortgage stress in Greater Adelaide, using our Core Market Model.

Here is a list of the top 10 most stressed post codes in SA, by the number of households in stress.

Mapping The Mortgage Stressed Households In Greater Perth

Following our October 2017 Mortgage Stress update, here is a map of the count of households in mortgage stress in Greater Perth, using our Core Market Model.

Here is a list of the top 10 most stressed post codes in the WA, by the number of households in stress.

We will post similar maps and lists across the other states shortly.

Mapping The Mortgage Stressed Households In Greater Brisbane

Following our October 2017 Mortgage Stress update, here is a map of the count of households in mortgage stress in Greater Brisbane, using our Core Market Model.

Here is a list of the top 10 most stressed post codes in Queensland, by the number of households in stress.

We will post similar maps and lists across the other states shortly.

Mapping The Mortgage Stressed Households In Greater Melbourne

Following our October 2017 Mortgage Stress update, here is a map of the count of households in mortgage stress in Greater Melbourne, using our Core Market Model.

Here is a list of the top 10 most stressed post codes in the region, by the number of households in stress.

We will post similar maps and lists across the other states shortly.

Mapping The Mortgage Stressed Households In Greater Sydney

Following our October 2017 Mortgage Stress update, here is a map of the count of households in mortgage stress in Greater Sydney, using our Core Market Model.

Here is a list of the top 10 most stressed post codes in the region, by the number of households in stress.

We will post similar maps and lists across the other states shortly.

Mortgage stress soars to record highs as borrowers struggle with jumbo loans

From The Australian Financial Review.

The number of Australian families facing mortgage distress has soared by nearly 20 per cent in the past six months to more than 900,000 and is on track to top 1 million by next year, according to new analysis of lending repayments and household incomes.

That means net incomes are not covering ongoing costs in nearly 30 per cent of the nation’s households, up from about 25 per cent in May, the analysis by Digital Finance Analytics, an independent commentator, shows.

Stagnant incomes, rising costs, unemployment, the likelihood that rates are more likely to rise than fall mean the number of families struggling to make ends meet is expected to continue increasing, the analysis shows.

Lenders’ recent attempts to build market share by lowering underwriting standards is also expected to begin appearing in the numbers as households struggle to repay jumbo loans, it shows.

“Risks in the system will continue to rise,” Martin North, DFA principal, said. “The numbers of households impacted are economically significant,” “Mortgage lending is still growing at three times income. This is not sustainable.”

Brendan Coates, a fellow at the Grattan Institute, a public policy think tank, said: “Even a relatively small rise in the interest rates paid by households would crimp their spending.

“If interest rates increase by 2 percentage points,  mortgage payments on a new home will be less affordable than at any time in living memory, apart from a brief period around 1989 — an experience that scarred a generation of home-owners.”

Nearly 22,000 households, of which 11,000 are professionals or young affluent, are facing severe distress, which means they are unable to meet mortgage repayments from current income and are having to manage by cutting back spending, putting more on credit cards, refinance, or sell their home.

About 52,000 households risk 30-day default in the next 12 months, up 3000 from the previous month. A lender, or creditor, can issue a default notice to a borrower behind on debt.

Bank portfolio losses are expected to be around 3 basis points, rising to about 5 basis points in Western Australia.

Mr Coates said: “Growing household debt has made the Australian economy more vulnerable. But the debt situation is not as worrying as the aggregate figures suggest.

“Most debt is held by higher income households and Reserve Bank research shows that relatively few households have high loans-to-total-assets ratios.

“Stagnating house prices — still the most likely scenario over the next couple of years — wouldn’t be enough to significantly trouble the banks.”

Rather than a banking crisis, higher debts could cause a  rapid fall in household spending in the event of a downturn, he said.

“Household consumption accounts for well over half of gross domestic product. Recent Reserve Bank of Australia research shows that households with higher debts are more likely to reduce spending if their incomes fall,” he said.

Economists generally argue mortgage stress, stagnant income growth and low inflation  mean the Reserve Bank will be unlikely to raise interest rates any time soon.

But that could change if there was another disruption to international financial markets, such as the 2008 shock, which sharply increased banks’ funding costs and raised mortgage rates.

October Mortgage Stress Higher Again – See The Top 10 Post Codes

Digital Finance Analytics has released the October 2017 Mortgage Stress and Default Analysis update. Across Australia, more than 910,000 households are estimated to be now in mortgage stress (last month 905,000) and more than 21,000 of these in severe stress, up by 3,000 from last month. This equates to 29.2% of households. We see continued default pressure building in Western Australia, as well as among more affluent household, beyond the traditional mortgage belts across the country.

We estimate that more than 52,000 households risk 30-day default in the next 12 months, up 3,000 from last month. We expect bank portfolio losses to be around 2.8 basis points ahead, though with losses in WA rising to 4.9 basis points.

Watch the video to see our countdown of the top-10 postcodes across the country this month.

Risks in the system continue to rise, and while recent strengthening of lending standards will help protect new borrowers, there are many households currently holding loans which would not now be approved. As continued pressure from low wage growth and rising costs bites, those with larger mortgages are having more difficulty balancing the family budget. These stressed households are less likely to spend at the shops, which will act as a further drag anchor on future growth, one reason why retail spending is muted. The number of households impacted are economically significant, especially as household debt continues to climb to new record levels. Mortgage lending is still growing at three times income. This is not sustainable.

Our analysis uses the DFA 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 October 2017. We analyse household cash flow based on real incomes, outgoings and mortgage repayments, rather than using an arbitrary 30% of income.

Households are defined as “stressed” when net income (or cash flow) does not cover ongoing costs. 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.

The forces which are lifting mortgage stress levels remain largely the same. In cash flow terms, we see households having to cope with rising living costs whilst real incomes continue to fall and underemployment remains high. Households have larger mortgages, thanks to the strong rise in home prices, especially in the main eastern state centres. While mortgage rates remain quite low for owner occupied borrowers, those with interest only loans or investment loans have seen significant rises.  We expect some upward pressure on real mortgage rates in the next year as international funding pressures mount, a potential for local rate rises and margin pressure on the banks. We revised our expectation of potential interest rate rises, given the stronger data on the global economy.

Probability of default extends our mortgage stress analysis by overlaying economic indicators such as employment, future wage growth and cpi changes.  We have also extended our Core Market Model to examine the potential of 90-Day defaults (PD90) and portfolio risk of loss in basis point and value terms. Losses (in terms of value) are likely to be higher among more affluent households.

Regional analysis shows that NSW has 242,399 households in stress (238,703 last month), VIC 250,259 (243,752 last month), QLD 162,726 (168,051 last month) and WA 121,393 (124,754 last month). The probability of default rose, with around 9,800 in WA, around 9,600 in QLD, 13,000 in VIC and 13,900 in NSW.

You can request our media release. Note this will NOT automatically send you our research updates, for that register here.

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Note that the detailed results from our surveys and analysis are made available to our paying clients.

Mortgage holders struggling under rate hikes

From Australian Broker.

A significant percentage of mortgage holders are struggling to cover their monthly repayments while a large proportion has already been slugged with higher interest rates despite the official cash rate remaining steady at 1.5%.

These results come from new research commissioned by mortgage brokers iSelect through Galaxy Research which polled over 1,000 Australian households. The study found that 25% were experiencing difficulty covering their mortgage repayments. In the same vein, the research suggests that 33% have had their interest rates increased in the past year.

“A third of home owners have had their rate increase during the past 12 months and if the RBA was to increase the official cash rate, no doubt most lenders would quickly follow suit. This would mean more and more Aussie homes will have to find ways to cut back in order to afford their increased home loan repayments,” said Laura Crowden, spokesperson for iSelect Home Loans.

She expressed her concern that a quarter of households were already in financial difficulties given that the official rate has been forecast to rise in the coming year.

“Despite having access to low interest rates, record house prices have forced many families to significantly extend themselves with almost 40% of households making their payments without having a surplus left over,” she said.

“As such it is not surprising that many Aussie home owners are already struggling to make their monthly repayments even while interest rates are low.”

The research found if interest rates were to rise by 1%, more than 780,000 mortgage holders would struggle to make repayments. This includes 632,000 households which would have to cut back costs to cover repayments and 150,000 which would be forced into further debt.

“We know from speaking to our customers that many Aussies are really feeling the pinch of rising cost of living pressures on their stretched household budget, especially as energy bills continue to skyrocket across much of the country,” Crowden said.

The research also found that a large percentage of mortgage holders were paying too much despite the low cash rate. In fact, 54% were paying an interest rate of 4% or more while 13% were paying over 5%.

Top 10 Mortgage Stress Count Down – September 2017

Mortgage stress rose again in September according to Digital Finance Analytics analysis, crossing the 900,000 household rubicon for the first time. The latest RBA data shows household debt to income rose again in June, to 193.7, further confirmation of Australia’s debt problem.

Across the nation, more than 905,000 households are estimated to be now in mortgage stress (last month 860,000) and more than 18,000 of these in severe stress. This equates to 28.9% of households. A rising number of more affluent households are being impacted as the contagion of mortgage stress continues to spread beyond the traditional mortgage belts. We estimate that more than 49,000 households risk default in the next 12 months, up 3,000 from last month.

Watch the video to learn more, and count down the latest top 10 post codes. We had some new regions “promoted” into the list this time.

The main drivers of stress are rising mortgage rates and living costs whilst real incomes continue to fall and underemployment remains high.  Some households are now making larger mortgage repayments following out of cycle interest rate rises, and are simultaneously facing higher power prices, council rates and childcare costs. This remains a deadly combination and is touching households across the country, not just in the mortgage belts.

Our analysis uses the DFA 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 September 2017. We analyse household cash flow based on real incomes, outgoings and mortgage repayments, rather than using an arbitrary 30% of income.

Households are defined as “stressed” when net income (or cashflow) does not cover ongoing costs. 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. The debt-to-income (DTI) ratios in severely stressed households are on average eleven times their current annual incomes and this is high on any measure. The combined statistics suggest there are continuing concerns about underwriting standards.

We revised our expectation of potential interest rate rises, given the stronger data on the global economy. Probability of default extends our mortgage stress analysis by overlaying economic indicators such as employment, future wage growth and cpi changes.

Martin North, Principal of Digital Finance Analytics said that “continued pressure from low wage and rising costs means those with bigger mortgages are especially under the gun. These stressed households are less likely to spend at the shops, which will act as a further 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 household debt to income ratio is now at a record 193.7.[1]

Gill North, joint Principal of Digital Finance Analytics and a Professorial Research Fellow in the law school at Deakin University, citing her recent research, suggests the Australian house party has been glorious – but the hangover may be severe and more should be done to mitigate future risks and harm to highly indebted households and the nation.[2]

She notes that at the beginning of 2016 the RBA and APRA stood largely aloof from concerns around levels of household debt and the major risk was complacency. While the RBA and APRA have been more vocal since and have taken steps to tighten lending standards, she calls for additional measures and highlights the continuing vulnerability of many households without financial buffers for adverse contingencies.[3]

Regional analysis shows that NSW has 238,703 households in stress (238,755 last month), VIC 243,752 (236,544 last month), QLD 168,051 (146,497 last month) and WA 124,754 (118,860 last month). The probability of default rose, with around 9,300 in WA, around 9,100 QLD, 12,800 in VIC and 13,100 in NSW.

You can request our media release. Note this will NOT automatically send you our research updates, for that register here.

[contact-form to=’mnorth@digitalfinanceanalytics.com’ subject=’Request The Sept 2017 Stress Release’][contact-field label=’Name’ type=’name’ required=’1’/][contact-field label=’Email’ type=’email’ required=’1’/][contact-field label=’Email Me The Sept 2017 Media Release’ type=’radio’ required=’1′ options=’Yes Please’/][contact-field label=”Comment If You Like” type=”textarea”/][/contact-form]

Note that the detailed results from our surveys and analysis are made available to our paying clients.

[1] RBA E2 Household Finances – Selected Ratios June 2017

[2] Gill North ‘The Australian House Party Has Been Glorious – But the Hangover May Be Severe: Reforms to Mitigate Some of the Risks’ in R Levy, M O’Brien, S Rice, P Ridge and M Thornton (eds), New Directions For Law In Australia (ANU Press, Canberra, 2017). An earlier version of this book chapter is available at https://ssrn.com/author=905894.

[3] See also, Gill North, ‘Regulation Governing the Provision of Credit Assistance & Financial Advice in Australia: A Consumer’s Perspective’ (2015) 43 Federal Law Review 369. An earlier draft of this article is available at https://ssrn.com/author=905894.