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Mortgagors increasingly worried over rates and repayments, bank finds

An increasing number of Australian householders are worried about their ability to repay and service their mortgages, new research has found.

According to ME’s most recent Household Financial Comfort Report, for the third report in a row, the level of optimism about future financial comfort has dropped by 4 per cent (over the 18 months to June 2017). 

The report, which takes its data from a total of 1,500 Australian household respondents, has shown that while overall household financial comfort index increased by 2 per cent (to 5.51 out of 10) in the six months to June, a growing number of householders expect their financial comfort to worsen in the near future.

Mortgage repayments and rental payments played a large role in their pessimism, with almost 40 per cent of householders currently paying rent or a mortgage worried about their ability to meet their payments in the coming year. 

Released ahead of the Reserve Bank of Australia's (RBA) monthly meeting on the cash rate, the report revealed that nearly a third of households (31 per cent) said they expected to be worse off if the bank decided to increase the rate by 1 per cent (from its current low of 1.5 per cent). 

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ME found that, on average, mortgaged households are spending about one-third of their income on mortgage repayments, with 15 per cent using up more than half of their pre-tax income for debt repayment. Nearly half (48 per cent) said they were paying more than 30 per cent of their post-tax income on housing. 

Further, households expecting to "not meet their required minimum payment on their debt" increased by 4 points to 9 per cent and households anticipating to "just manage to make the minimum payments" increased by 2 points to 33 per cent. 

In contrast, households "expecting to pay a little/lot more than the minimum payments on their debts" decreased by 6 points to 58 per cent. 

Single parents were most likely to report an inability to meet the required minimum payments on debt (up 6 points to 19 per cent), followed by "couples with young children" (up 4 points to 10 per cent). 

By mortgage type, slightly more investors said they expected to "not meet their required minimum payment on their debt" than owner-occupiers (both up 2 points to 7 per cent, respectively). 

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About 10 per cent of households living in a property valued at less than $300,000 and almost 20 per cent of people on annual incomes of less than $40,000 said they expect they will be unable to meet minimum debt repayments in the next 6-12 months.

ME Consulting economist and report co-author Jeff Oughton stated that households are increasingly concerned over rumours that the RBA will increase the cash rate. 

He added: “This will continue to be an important factor in household financial comfort, especially since the RBA has marked 3.5 per cent as the new norm for the neutral cash rate — well above the current actual cash rate.”

Mr Oughton concluded: “Overall financial comfort rose most notably due to 3 per cent rises in comfort with savings, income and investments, reflecting some improvements in the labour market, rising house values and investments.

“But the cost of necessities remains the biggest concern for Australians, and when combined with stagnating or falling income for up to nearly 70 per cent of households, expected further rises in the cost of necessities like power prices, as well as rises in mortgage rates, the future doesn’t look as bright for some.”

[Related: Get ready for eight rate hikes, says bank]

Mortgagors increasingly worried over rates and repayments, bank finds
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Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Contact Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.

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