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Low rates, rising house prices ease debt woes

Record low mortgage rates and rising property prices are improving households’ comfort with debt in the major cities in Australia even as overall household financial comfort fell significantly in regional Australia, according to ME Bank.

The industry fund-owned bank's latest Household Financial Comfort Report revealed comfort with debt has increased by 7 per cent for households in metropolitan areas, particularly those with mortgages on their homes or on an investment property.

The biannual survey showed that across the 11 key drivers that make up its ‘Household Financial Comfort Index’, the biggest improvement was with “comfort with debt”, which was up 5 per cent to 6.55 out of 10 during the six months to December 2019, reaching record highs.


Commenting on the survey findings, ME Bank’s consulting economist Jeff Oughton said: “Significantly lower home loan rates and relatively low and stable unemployment rates helped to significantly improve comfort with debt – especially in major capital cities.

“A partial reversal of the fall in residential property prices in eastern capital cities and expectations of further price gains have also eased gearing concerns.”

While a fall in home loan rates, sustained low unemployment and improved property prices in most of the country has contributed to the reduction in mortgage stress in the past six months, there remains generally high levels of mortgage stress and other financial stress among households.

The proportion of households contributing more than 30 per cent of their disposable household income towards their mortgage fell a further two points to a still high of 41 per cent of households, five points lower than a couple of years ago.

Impact of low RBA interest rates

For the first time in the latest survey, ME Bank asked households if they thought they were better or worse off as a result of the historically low official interest rates.

Overall, slightly more households reported being better off (27 per cent), compared with worse off (23 per cent), while the remaining half of households reported they weren’t impacted positively or negatively.

In other words, the bank said, this is a “net positive impact from very easy monetary policy”.

“Those households paying off a mortgage felt they were far better off than those renting or who already own their homes,” Mr Oughton said.

“When it came to investors with debt, results show they feel they’ve benefited the most, with 60 per cent stating they were better off from the flow on to record low mortgage rates – an indication of the high level of gearing among residential property investors in Australia.”

In terms of life stage, young singles and couples with no children appeared to be the biggest winners, with 51 per cent saying they were “better off”, while 41 per cent of couples with young children provided the same response.

The report also revealed household optimism regarding the outlook for residential property prices has continued, with 47 per cent of owner-occupiers and 51 per cent of investors revising up price expectations for 2020.

When broken down by capital cities, Brisbane investors and owner-occupiers were the most optimistic about higher property prices, at 67 per cent and 61 per cent, respectively.

This was followed by Melbourne owner-occupiers at 55 per cent and Sydney investors at 51 per cent. Owner-occupiers in Perth remain the least optimistic at 29 per cent.

Overall household financial comfort

Household financial comfort fell significantly across regional Australia during the six months to December 2019, according to ME Bank’s report.

The survey of 1,500 households showed the gap in financial comfort between regional and metropolitan households has now reached a record 13 per cent, almost twice the historical average of 7 per cent.

The financial comfort of metropolitan households increased by 3 per cent to near record highs of 5.76 out of 10, particularly in eastern Australia. However, financial comfort for regional households fell 4 per cent to 5.08, continuing a decline over the past year to approach its lowest point in the past eight years.

“The sharp fall in financial comfort in regional areas is likely a result of ongoing drought and recent bushfire catastrophes, which have significantly lowered already low levels of financial comfort,” Mr Oughton said.

The survey showed “comfort with cash savings” fell 9 per cent and the “ability to deal with financial emergencies” fell 7 per cent, while long-term retirement comfort deteriorated, with “anticipated standard of living in retirement” down 7 per cent.

Regional Queensland reported the largest fall in comfort, down 14 per cent to 4.95, dropping below regional NSW, which stood at 5.09 and Victoria at 5.2.

The falls in financial comfort across regional Australia stifled the overall rise in national financial comfort, with the index improving by 2 per cent to 5.59 out of 10 during the six months to December 2019.   

Across the 11 key drivers that comprise the index, 10 of the drivers improved.

[Related: FHBs flock to market in December]

Low rates, rising house prices ease debt woes

Malavika Santhebennur

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.

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