Via Mortgage Business:
Several industry participants have voiced concern over mortgage stress and the rising risk of defaults, as wage growth fails to keep pace with the costs of living.
Approximately 51,500 borrowers could be at risk of defaulting on their mortgages in the coming year, with over 30 per cent of Australians experiencing mortgage stress, finder.com.au has suggested, after analysing research from Digital Finance Analytics’ (DFA) Household Survey.
Speaking to Mortgage Business, the principal of DFA, Martin North, noted that “at risk” borrowers were most prevalent in mining-centred regions across Queensland and Western Australia. He added that “severe” mortgage stress could be on the rise in other parts of the country.
“There are more people currently at risk in Western Australia and in Queensland, which is an outfall from the mining downturn, but we’re also seeing a significant rise in severe stress in Western Sydney, on the outskirts of Melbourne and around Brisbane,” Mr North said.
“Defaults over the next two years are not necessarily going to be centred in the West or in Queensland, but we’re going to see some more significant risks in and around the main urban centres in Brisbane and Melbourne.”
Mr North attributed the increased risk of mortgage defaults to slow wage growth, cost of living pressures and high mortgage repayment costs for borrowers that were issued with home loans prior to regulatory tightening.
The principal said: “There are a few drivers. The first is that incomes are not growing in real terms, particularly if you’re in the private sector. The income growth is on average 1.9 per cent. A lot of people haven’t had a pay rise in a long time, so income is compressed.
“Secondly, cost of living is rising and that includes everything from electricity bills, child-care costs, cost of fuel, [etc]. So, it’s the impact of incomes versus costs not going in the right direction.
“The third thing is that the costs of the mortgage, particularly in the major urban areas around Sydney and Melbourne, are a lot bigger because home prices have gone up a lot, so people are leveraged. They’ve got very large mortgages and very little wiggle room as a result.”
The market analyst also noted that a lack of financial awareness and household budgeting is to blame for rising levels of mortgage stress. Indeed, according to Mortgage Choice’s Financial Savviness Whitepaper, 54.9 per cent of Australians fail to review their finances at least once a week.
I suspect the new distribution of stress it will be more like outer Sydney, inner Melbourne and diffused across Brisbane because:
- the Sydney mortgage belt is always where the hammer falls hardest;
- the Melbourne mortgage belt is still booming thanks to massive immigration but the inner city is where apartments are tumbling, Chinese are withdrawing and leverage is greatest;
- Brisvegas is just like that.
