Mortgage stress drops with low rates

The number of homeowners experiencing mortgage stress has halved since March as borrowers take advantage of record-low rates.

Released yesterday, the Genworth Homebuyer Confidence Index increased to 98.1 in September from 90.8 in March, with first home buyers (FHBs) contributing significantly to the findings.

Based on a survey of over 2,000 Australians, the index looks at the proportion of monthly income used to service debts, the maximum loan-to-value ratio borrowers are comfortable with, their repayment history over the last 12 months and expectations for the next 12 months, and whether now is thought to be a good time to buy a home.

“We suspect that the increase in confidence is a result of 13 months of historically low interest rates, increased certainty around the 2014 May federal Budget and the ongoing health of the Australian economy,” Genworth Australia chief commercial officer Bridget Sakr said.

“Almost half of surveyed homeowners said they increased their mortgage buffer by making overpayments during the past 12 months,” Ms Sakr said.

“Interest rates have virtually disappeared as a source of mortgage stress with just three per cent of struggling homeowners now citing this as a key factor of mortgage stress compared to 50 per cent in September 2011,” she said.

“It seems clear that the low interest rate environment that we find ourselves in is having a very positive impact on the confidence levels of many homeowners.”

The number of homeowners experiencing mortgage stress within the past year has almost halved, falling from 28 per cent of respondents in March to 15 per cent in September, according to the index.

Approximately two per cent of all homeowners are behind in their mortgage repayments in comparison to the average of more than three per cent as reported over the last three years.

First home buyers who purchased in the past 12 months contributed most significantly to the index’s increase with confidence in this segment rising to 98.4 from 82.3 in March, a level not seen since September 2012.

The proportion of all respondents who believe that now is a good time to buy a home fell to 41 per cent in September from 42 per cent in March, likely driven by house price appreciation – particularly in Sydney and Melbourne.

“While the Genworth Homebuyer Confidence Index has returned to a positive result overall, dwelling value growth of late and the ongoing challenge of saving a deposit means that many prospective first home buyers are still finding it difficult to enter the property market,” Ms Sakr.

“This ongoing challenge for many Australians highlights the value of low deposit options such as lender's mortgage insurance which can help people enter the property market with a deposit as low as five per cent.”

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