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Mortgage stress at 3-year lows: research

Mortgage stress among households have dropped to the lowest level in three years, driven by a range of factors, according to figures from ME Bank.

The industry fund-owned bank’s Household Financial Comfort Report has revealed that quantitative indicators of mortgage stress had decreased by five percentage points to 37 per cent during the past six months to December.

According to the bank, this is the lowest in three years since the survey began to collect this serviceability data.

The indicators of mortgage stress are measured by those households making loan payments of more than 30 per cent of their disposal income.

The report attributed the decrease to record-low interest rates, government income support and, to a lesser extent, the deferral of loan repayments by some households.

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In addition, the report added that most households have also continued to meet their minimum commitments, are “well ahead” of their minimum repayments required on home loans, and have significant net equity (or savings) in their homes.

The biannual survey – which quantifies how comfortable Australian households feel about their financial situation – has also found that across households, those most concerned about debt included 51 per cent of those paying off a mortgage compared with 21 per cent of households that own their own home (but may have borrowed for investments or property), and 32 per cent of renters.

In December, 5 per cent of households were “unable to pay their mortgage on time during the past year due to a shortage of money”. In comparison, 6 per cent “could not pay their rent on time”, and 10 per cent were “unable to pay off their loan or credit card”, including 26 per cent that reached the limit on one or more credit cards.

Meanwhile, the comfort level among households paying off their mortgage had remained at a record level of 5.63, but this is broadly unchanged from the previous report period.

While a small proportion of these households had been supported by deferring home loan repayments, the bigger driver was them refinancing at record-low borrowing rates, according to the ME Bank report.

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“A rise in the comfort of their ability to manage a financial emergency and, to a lesser extent, cash savings was offset by lower comfort with most other drivers,” it said.

On the other hand, home owners without mortgages had seen their comfort level rise by 3 per cent to 6.77 during the six months to December.

“All drivers of comfort for owners without mortgages on their homes improved substantially, except for their anticipated standard of living in retirement during the past six months,” the report said.

Overall, the survey has shown that Australian household financial comfort had increased a further 2 per cent over the six months to December 2020, 5 per cent higher than before COVID-19, the highest level since ME first commissioned the survey nine years ago, and 7 per cent above the historical average.

Commenting on the findings, ME Bank’s consulting economist, Jeff Oughton, said the peak in financial comfort was driven by a combination of “prudent and resilient” household behaviours, government income payments, low interest rates, and a rebound in house and share prices.

“Households have increased cash savings, cut overspending, paid down debts, and withdrawn retirement savings to improve their ability to handle the emergency,” Mr Oughton said.

“This precautionary behaviour supported by the sizeable temporary government income support and very accommodative banking and financial conditions has no doubt helped drive financial comfort to a new record high in December.

“However, paradoxically, if Australians stay precautionary in their spending and maintain their big saving buffers, an inclusive and durable recovery may be jeopardised, which will unfortunately hurt many of those same households with low levels of comfort the most.”

[Related: First home buyers to slow down, investors to return in 2021]

Mortgage stress at 3-year lows: research
Mortgage stress at 3-year lows: research
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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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