Mortgage stress affecting a third of borrowing owner-occupiers

About one third of borrowing owner-occupier households are in mortgage stress, new data from Digital Finance Analytics shows.

That number has gone up by nearly 2 percentage points since December 2018.

The proportion of the Australian population feeling the pressure from their home loans is equivalent to more than 1.1 million households, despite the record-low official interest rate, which is at 0.75 per cent.

And the number of homeowner defaults expected in the next 12 months has risen by about 34 per cent since December 2018 to more than 83,400.

The researchers’ definition of mortgage stress is when a household’s outgoing costs, including mortgage repayments, outweighs their net income. While the household might have assets that could be sold, they are stressed in terms of cash flow.

Young growing families is the group with the highest proportion of households in mortgage stress with 56 per cent of the cohort under strain.

And more than 300,000 households in the disadvantaged fringe, which are earning below-average incomes, are experiencing difficulty with their home loans, making it the segment with the highest number of borrowers feeling stretched.

Tasmania and South Australia, where mortgage stress is affecting 37 per cent and 34 per cent of mortgagors respectively, are the most affected states. This highlights the housing affordability issue in these states, as property prices remain high relative to income.

Martin North, Principal of DFA, was not surprised by the increasing numbers, citing the rising costs of living.

“These households are not reducing their debt, rather in some cases they are turning to additional finance to try and bridge the cash-flow gap. Or they are raiding savings if they have them, and are putting more on credit cards,” he said, adding that he expects income growth to remain low.

How to deal with mortgage stress

To help get on top of potential mortgage stress, consider using RateCity’s Mortgage Stress Calculator, which property owners can use to check if they are experiencing mortgage stress. The calculator classifies borrowers to be in mortgage stress if they are spending 30 per cent or more of their pre-tax income on home loan repayments.

Many survey participants don’t realise they’re in mortgage stress, as they don’t track their spending and aren’t aware of their cash flow, Mr North said. So, it could be a good idea to track your income and outgoings, so you know how much you have remaining after expenses. ASIC’s website MoneySmart has some tools to help with this.

Additionally, if you have other debt apart from your home loan, consider concentrating on paying off the high-interest debt (for example, credit cards). You could also think about cutting unnecessary costs and changing how you spend money.

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