ME Bank’s latest survey of mortgage holders has noted increased mortgage stress among lower-income households due to greater living costs and little or no increase in wages. ME Bank also found that the percentage of renters who are paying 30% or more of their disposable income on rent payments has increased from 69% to 72%:
“Households’ comfort with paying their monthly living expenses fell 3% to 6.40 out of 10 during the six months to December 2017, the lowest it’s been since mid-2014,” said Jeff Oughton, ME consulting economist and co-author of the report.
“In fact, ME’s latest report shows many households’ financial situation is getting worse and again the culprit is living expenses, with 40% reporting this as a key reason their situation is worsening…
More than half of households (56%) renting or paying off a mortgage reported they are contributing over 30% of their disposable household income towards this cost – a common indicator of financial stress – with 72% of renters spending 30% or more of their disposable income on rent and 46% of those paying off a mortgage putting 30% or more of their disposable income towards this.
Furthermore, the proportion of households who ‘worried about their household’s level of debt over the last month’ increased by 1 point to 38%. This proportion increased to 51% among mortgage holders, compared to 27% with no mortgage and 23% who own their own home outright.
“Seven per cent of households reported they could not always pay their mortgage on time during the past year, and 7% could not pay their rent on time.”
“Mortgage defaults may escalate if interest rates increase, particularly among vulnerable low-income households already dealing with the rising cost of necessities,” said Oughton…
The household financial comfort of renters remained significantly lower (down 1% to 4.49) than households paying off their mortgage (down 2% to 5.38) and, to a greater extent, homeowners who own their home outright (unchanged at 6.43)…
A disparity in financial comfort between some household groups remain, with 30% of households reporting their financial situation worsened in the past year, while 35% reported it remained the same and 35% reported it improved.
“Around 61% of households with ‘low levels of comfort’ reported a significant worsening in their overall financial situation during 2017, while almost 70% of households on ‘high levels of comfort’ reported that their financial comfort improved during 2017. In other words, the rich are getting richer and the poor are getting poorer,” said Oughton.
Hardest hit were households with incomes below $40,000, 45% of which said their financial situation had worsened, as well as single parents and baby boomers, 36% of which reported their situation had worsened…
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
