More than half of households are contributing more than 30 per cent of their disposable household income - a common benchmark for financial stress - towards rent or paying off their mortgage. My answer to that is live within your means !!
Australians are experiencing high levels of mortgage stress and they're set to worsen, according to ME's 13th Household financial comfort report. Simple get rid of your car loan, stop using your credit card, start renting something you can afford, or sell the existing home that's causing you that stress.
Consulting Economist for ME bank, Jeff Oughton, told SCHWARTZWILLIAMS, "this is a common indicator of financial stress for households paying off their homes - especially lower income households". Dont buy a home rent where you can afford to live, not everyone can afford to buy a home.
"That said, 14 per cent are paying more than half their disposable income on home mortgage payments," he said. That's what I call a very irresponsible broker or bank at work and thanks for thinking of the person you just set up for all that stress.
A total of 72 per cent of renters said they are spending 30 per cent or more of their disposable income on rent and 46 percent o those are paying off a mortgage are putting 30 per cent or more of their disposable income towards their mortgage repayments.
"Not surprisingly, the proportion of households who worried about their household's level of debt over the last month increased by 1 point to 38 per cent in December 2017, said Oughton. This figure was as high as 51 per cent for mortgage holders.
Oughton cautioned that higher interest rates are likely to worsen already hgih levels of financial stress. Hope the bank losses its money for being so irresponsible in the first place.
"Mortgage defaults may escalate if interest rates increase, (apparently not until June 2019 if you read or believe the papers) particularly among vulnerable low-income households already dealing with teh rising cost of necessities" he said.
Oughton said, "the majority of households are coping well with debt servicing burdens due to relatively low loan rates, job gains and a sustained rise in house prices. However, job losses, underemployment and falling property prices present challenges to households in some regions.
HIGH DEBT LEVELS MAKE SENSE IN GOOD TIMES, BUT BAD TIMES MAY ARISE UNEXPECTEDLY.
"Furthermore, some households have debt levels that make sense in 'good times', but, they haven't allowed for the fact that 'bad' times may arise unexpectedly. Some households are close to their maximum risk position, not considering that loan rates will inevitably rise significantly from record lows". Surely people are not that confused about what happens to them regarding their repayments, surely they gauge it on 2-3% higher than what it is....
Oughton said wages growth and sound financial management were the keys to alleviating some of the financial pressure on the households. Sell up and get yourself in to the right space or rent at a lower rate, stop eating out etc etc...
"Australian households want higher disposable incomes to ensure that they can keep up with the rising cost of living and regular monthly expenses," he said.
He also advised households to "build some cash savings for unexpected emergencies".
Yeah stop going on your European holiday, buying a new car, a new wardrobe and all the other goodies you seem to keep buying.
WHAT HAPPENS IF RATES MOVE HIGHER?
Oughton said he expects rates to begin moving higher within the next two years.
While the future path of interest rates is uncertain, the RBA is likely to remove its highly accommodating financial policy and raise official cash rates over the next couple of years. Indeed, medium to long term rates have already began to rise and increase bank loan funding costs, and financial markets also expect the RBA to start putting up cash rates in the later 2018.
Oughton said its quite likely that mortgage defaults will rise if rates begin to move higher.
"ME's household financial comfort report shows 7% of households were not able to pay their mortgage on time during the past year and a similar proportion do not expect to be able to meet minimum payments on their mortgage over the next 6-12 months. A further 31% anticipate to just manage to make minimum payments," he said. These people are unaware of the responsibilities they have under taken and they need some serious help.
If interest rates rise significantly (which they will) and unexpectedly, mortgage defaults would increase, he said.
"Those hardest hit will be low-income households already dealing with the rising cost of necessities with little cash savings or negative, if any, equity in their homes.
Some regions with excessive supply of new dwellings and households with excessive ebt may also experience significant house price falls an increased defaults from sustained higher loan rates.
HOW TO AVOID FINANCIAL STRESS - live within your means would help
ME money expert Matt Read said there are some simple ways households can better manage their finances and avoid mortgage stress.
"Investigate what you spend your money on and identify if anything could be cut out - this could be anything from coffee (oh heaven forbid I hear you say) and restaurant meals to dry cleaning and your hair colouring," he said.
Read recommends ASIC's TrackMySpend app as a good way to keep track of personal expenses.
"Question what you buy and where you shop - could you be getting a better deal? Set a budget on costs and stick to it" he said.
Read also suggested making sure your utility provider is delivering competitive prices, negotiating a better home loan rate, or even switching lenders if that will deliver a saving.
(Its called ringing a damn decent broker and getting them to negotiate you the best deal around they cost you nothing)
Negotiating your home loan rate or switching lenders could save, on average, up to $130 per month, $1,560 a year, or $46,000 over the life of the loan, according to ME.
In all seriousness if you have not contacted a decent broker you are way behind the 8 ball. Do you think your bank is going to do the best deal for you - no way its all about their share holders and their profits, you are just a mere number.
MAKE YOUR OWN DECISIONS AND GIVE IT A REAL GO!!
SELLING MOSMAN PARK & THE WESTERN SUBURBS!!
KEEPING IT REAL IS OUR MOTTO!!
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