Mortgage default risk in Australia is at its highest in two decades. International ratings agency Moody’s Investors Service has revealed Australia’s mortgage delinquency rate (when a home loan is not paid on time) was at its highest level in 5 years, with 1.58 per cent of people at least 30 days behind on their mortgage repayments. This means more than a million home-owners struggled with some form of mortgage stress in March this year. Similar red flags were also found by Digital Finance Analytics (DFA). The firm’s founder, Martin North, said defaults are rising each month at a concerning rate and that the 30-day default is an important indicator as it directly relates to a household’s cash flow.

A spokesperson for Westpac – one of Australia’s biggest home lenders – said the 30-day indicator was not an indication of what was happening in the economy. Banks use the 90-day default rather than a 30-day default period to measure mortgage performance.

Due to increasing household debt levels, low wage growth and many loans being converted from interest-only to principle and interest, mortgage defaults and delinquencies are expected to rise. People struggle to find enough money to meet their day-to-day expenses come under all income brackets. The Australian Bureau of Statistics (ABS) found that in the 2015-16 financial year, around three in 10 households (approximately 29%) were classified as over-indebted. They also found that home-owners with a mortgage were the most likely households to be in debt.

Mortgage Stress is at an All-Time High

Australian households are defined as ‘stressed’ when their net income (or cash flow) does not cover ongoing living expenses. There are two types of mortgage stress:

Mild stress – when you have little leeway in your household cash flow.

Severe stress – when you are unable to meet your repayments such as your home loan and utility bills with your current income.

Digital Finance Analytics’ December 2018 mortgage stress and default analysis shows that household debt to income is constantly increasing.

STATISTICS: Mortgage Stress is Breaking More Households (Digital Finance Analytics, 2018)

Their survey data shows a record number of Australian home-owners with a loan, over one million (which is approximately 31% of owner-occupied borrowing households), are struggling with some degree of mortgage stress. 66,700 households are currently at risk of defaulting on their mortgage, with 22,000 of these in severe mortgage stress. But whether you are in mild or severe household stress, there are ways you can manage household debt to avoid defaulting on your mortgage.

Managing Mortgage Stress

Many households rely on credit cards and personal loans to get by if they’re in financial stress. In the long-term, this can add to your debt and makes it even more difficult to pull yourself out. Instead, there are positive solutions you can choose to manage your mortgage stress, just take it one step at a time. The worst thing you can do when you are drowning in debt is nothing, as the longer you leave the problem the harder it will be to manage.

Step 1 – Prioritise Your Debts

Where you have one or more debts, focus and pay as much as possible on the smallest balances first while only paying the minimum payment on larger debts. The idea is to then make your way through your various debts one debt at a time. This debt-reduction strategy is referred to as the Snowball Method. The idea of the snowball method is to pay down the smallest debt first which creates momentum and satisfaction in paying it off. Then you are able to get rid of outstanding debts in a quicker time.

Step 2 – Talk to Your Credit Providers

It’s more than likely your credit providers don’t know about your financial situation. When you get in touch with them, they may understand what you’re going through and give you an extension on your debt or a lower repayment schedule.

Step 3 – Apply for Financial Hardship

If you are experiencing financial hardship, you may be able to apply for hardship variation. Hardship variation is a process where you can ask your creditors to vary the terms of your loan contract to allow you to postpone repayments, make interest-only repayments for a period of time or extend your loan period.

Step 4 – Talk to a Professional

If you’ve gone through all of the steps and nothing seems to be working, it’s time to talk to a professional about your financial stress. This is where Revive Financial can help.

Is-Your-Business-In-Financial-Distress

How We Can Help

There are many options you can take when you’re facing mortgage stress. We provide a suite of financial services specifically designed to help you break down the barriers for a successful financial future.

Debt Consolidation 

A Debt Consolidation loan can help you regain control of your financial situation and move forward with your life it reduces your debt by rolling all of your debts (such as credit cards and personal loans) into one, affordable payment with a single interest rate and set of fees.

Mortgage Refinancing 

Refinancing your mortgage will improve your financial standing so you can better manage your debt. If you refinance your mortgage, you can access the equity in your home to pay off unsecured debts through a debt settlement. This will eliminate those debts and leave you with one, easy repayment.

Informal Agreement 

An informal agreement allows you to renegotiate the conditions of your debt repayments, making them more affordable for you while still honoring your creditors. At Revive Financial, we can tailor an informal agreement around your unique circumstances to create a repayment plan you can afford and your creditors are happy with.

Each option will depend on your individual financial situation, but all are positive solutions to help relieve you of your mortgage stress so you can regain financial confidence.

Don’t Risk a Mortgage Default. Act Now.

Although mortgage stress is on the rise in Australia, there are ways you can avoid sinking into debt. Call Revive Financial today on 1800 534 534 for a free consultation.

For more information on mortgage refinancing and how to refinance your mortgage to consolidate debts, check out our mortgage refinancing page.

Topics: Debt Consolidation, Mortgage Refinancing, Debt News, Personal Debt

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