Australia’s Current Mortgage Stress Crisis – and How to Manage it

5 Tips on Managing, 5 Tips on Avoiding Mortgage Stress

According to recent Roy Morgan research, 942,000 Australians are currently experiencing mortgage stress. This is largely due to current economic instability, including five months of super-sized interest rate hikes, the rising cost of living and stagnant wage growth.

If, as predicted, the Reserve Bank of Australia (RBA) raises rates once again in November, this figure would rise by a further 158,000 to 1.1 million.

Due to the latest 0.25 rise in October, an Australian with a $500,000, 25-year mortgage is now paying a further $76.46 a month on their repayments.

But what exactly is mortgage stress, who’s most at risk, and what can you do if you’re facing it or at risk of it?

Mortgage Stress Definition

Mortgage stress is a term used by economists and property experts to describe a household struggling to meet its mortgage repayments.

It happens when home loan obligations consume more than a comfortable percentage of a household budget. This is usually considered to be 30 per cent of pre-tax (gross) income. At this point, people tend to worry about their other household financial obligations and hard costs.

The problem is that these payments aren’t optional and must be met. You don’t get to choose how much you pay, like other expenses such as food and entertainment.

While mortgage stress can happen for a wide range of reasons, from losing a job to increases in spending, such as having a child, for a large majority of homeowners, the current turbulent economy is putting the pressure on.

Current Mortgage Stress Risk and Mood

Three distinct groups are most at risk right now. These are:

• Lower-income households
• Higher-earning suburbs
• First homeowners who purchased in the past 12 months

Meanwhile, research from AMP Bank found that Australian homeowners aged 44 and under are particularly worried about finances. Seventy-four per cent are worried about meeting their home loan repayments.

Queensland, NSW and Victoria will be hardest hit as interest rates rise and property prices slide. In Brisbane, current mortgage stress suburbs include Brookfield, Chapel Hill, Fig Tree Pocket, Kenmore, Kenmore Hills, Pinjarra Hills, Pullenvale, and Upper Brookfield.

Almost three-in-ten borrowers said in a survey that they didn’t consider the cash rate would increase at all when budgeting for a home loan. This is despite them having to account for it in their home loan assessments.

As a result of mortgage stress, many Australians have had to stretch their budgets to make ends meet. Often it’s essentials like food and clothing that get cut.

Even if people manage to cope and keep up with rising mortgage repayments, the level of stress and anxiety is and will be, increasingly significant.

New research shows that almost two-thirds of Australian homeowners are worried about meeting their mortgage repayments as interest rates continue to rise.

Are you Mortgage Stressed?

If your home loan repayments account for more than 30 per cent of your gross income, you’re categorised as having mortgage stress.

There are plenty of online tools out there that allow you to do a simple mortgage stress test to figure out your percentage. This is known as your mortgage-to-income ratio.

f you’re above 20 but below 30, you’re at risk of mortgage stress. So, with interest rates predicted to rise further, you could run into repayment problems in the coming months.

If you’re looking at getting a new mortgage, check out our handy home loan calculator before you do to ensure you’re not setting your finances up for a fall. Home ownership comes with significant additional costs, such as repairs, maintenance and insurance, so make sure you factor these into your budget.

5 Tips to Manage Mortgage Stress

If you’re currently experiencing mortgage stress and are feeling anxious and scared about not being able to meet your repayments, breathe and remember that you’re not alone – and you have options open to you.

1. Check and cut your budget - The first thing to do is a simple household budget to make sure you can cover all your essential expenses. Use our online budgeting calculator to make it easy. If you can’t cover expenses, start making cuts where you can.
2. Ask for financial assistance - Speak with your creditors and ask for financial assistance. Your mortgage lender will have a hardship team who may be able to offer you relief, for example, by pausing your repayments or possibly offering a lower interest rate.
3. Refinance to a cheaper home loan - Shop around for refinancing and see what other mortgages are available to you. You may be able to find one with a lower interest rate or one with no fees.
4. Consolidate all your debt - Mortgage stress can make your overall finances feel overwhelming. Help ease the anxiety by looking at merging your other existing debts, such as car loans, personal loans and credit cards, into your home loan.
5. Seek expert financial advice - Speak to a specialist in financial hardship. Not only can they help you feel more in control, but they can also help you with your budget and do creditor negotiations for you.

Better Still… 5 Ways to Avoid Mortgage Stress!

A proactive solution is always better than a reactive one – though not always possible.

But, if you’re not currently experiencing mortgage stress and don’t want to find yourself in it, there are several smart ways to avoid it.

1. Be realistic about what you can afford when taking out a home loan – buy within your means and know your limit!
2. Assess your home loan every couple of years to see if it’s still right for you.
3. Use an offset sub-account to offset the balance of your home loan. This means you’ll be charged less interest, and helps you save.
4. Look at split loans – have one-half of your loan charges at a variable rate and another at a fixed rate.
5. Cut down on expenses and debts. For example, consider unused gym memberships, unnecessary clothing, and your daily coffee.

Don’t Let Mortgage Stress Affect Your Wellbeing

Much of Australia is deep in mortgage stress right now. If you are too, or are on the verge of it, the anxiety and worry you’re feeling as rates continue to rise is probably palpable.

But experiencing financial difficulties isn’t worth putting your mental and physical health at risk. Support and options are available to you. You’re not alone.

If you’re currently experiencing mortgage stress or at risk of it, get in touch with our team of specialists today on 1800 534 534 for support, advice and to discuss your options.