No safety net for borrowers

By Lucy Dean

February 16 2018
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Despite forecasted low rates of mortgage arrears, Aussie home owners are without “much of a buffer” should rates rise and discretionary spending will take the hit.

In a report released yesterday, S&P Global Ratings asked whether Australia’s improving economy is actually helping Aussies keep up with their home loan repayments.

It found that while continued jobs growth, low interest rates and anticipated wage growth should see arrears remain at low levels, highly leveraged Aussie households will also have little capacity to withstand a rate hike.

“More than 70 per cent of borrowers in RMBS [residential mortgage backed securities] portfolios are owner-occupiers. Faced with rising interest rates, we expect most of these borrowers to cut back on other forms of discretionary spending to avoid going into arrears on their home loan repayments,” S&P said.

The ratings agency also noted that there are less new loans shifting into arrears, the number of those that are already in arrears of 90 or more days are increasing.

Queensland and Western Australia were highlighted as hotspots, with S&P expressing concern that households in those regions with arrears would face difficulty refinancing.

“While there have been improvements in these states on some economic fronts, we expect borrowers in the more advanced stages of arrears to face tougher refinancing prospects. This is especially the case in Western Australia, given property price declines and the flow-on effect on loan-to-value ratios,” S&P said.

High debt joined by rising cost of living

In addition to the threat of rising rates, Aussies are being squeezed by the growing cost of living, the CEO at Mortgage Choice said.

Speaking yesterday, John Flavell said he was not surprised that nearly 20 per cent of Aussies predict they won’t be able to fund their retirement without government assistance.

He commented: “The fact is, the cost of living continues to rise, which is stopping many Australians from effectively saving enough money to fund a comfortable retirement.

“Everyday expenses including gas, electricity, childcare, telecommunications and transportation continue to climb higher year after year. And, to make matters worse, wage growth is stagnating. As such, Australians are being forced do even more with the same amount of money.”

Referring to Mortgage Choice’s Australian Financial Savviness Whitepaper, he said it was interesting that younger Australians were the most optimistic about their retirements, despite stagnating wage growth and growing costs of living.

According to the Australian Bureau of Statistics, Australian wages grew only 2 per cent between the September 2016 quarter and the September 2017 quarter.

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