Mortgage stress reaches 3-year low

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March 01 2021
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Despite mortgage-holders experiencing record levels of comfort, red flags are emerging with financial stress tipped to rise, new research has revealed.

ME Bank’s Household Financial Comfort Report has found that a combination of record-low interest rates, government support and deferral of loan repayments for some households has seen mortgage stress fall to three-year lows.

The industry fund-owned bank’s report shows 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 disposable income.

ME Bank’s consulting economist, Jeff Oughton, said the pandemic has triggered households to become proactive about their finances.

“Households have increased cash savings, cut overspending, paid down debts, and withdrawn retirement savings to improve their ability to handle the emergency,” he said.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, Mr Oughton predicts Australia’s all-time high in financial comfort is likely to be short-lived. Comfort will fall as the health crisis ends and an uneven economic recovery continues.

“A decline in household financial comfort is likely to play out over the next six months as government support – especially JobKeeper and JobSeeker − is phased out,” he said.

“Australia’s labour market also remains weak, with many workers reporting very high underemployment, together with increased expected difficulty in finding a job and subdued wage gains, if any.”

The report has found that over half of the surveyed Aussies expect that it will be more difficult to find a new job in the next two months while also expecting their financial situation to worsen.

“Unless the economy gains further momentum from a rundown of these large saving buffers and a faster pace of household spending, prematurely ending government support could have negative consequences on the financial comfort of many households. Wide gaps in financial comfort across households could reemerge,” he concluded.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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