Are Australians really mortgage stressed?

The Perth property market is experiencing a slow down, having decreased by about 10% over the last 5 years, with the median house price falling from a high of $560,000 to around $505,000.

Despite interest rates remaining at a record low of 1.5 per cent, the question at the forefront is are families making bigger contributions to their mortgage repayments? Or are they spending the extra savings on other discretionary expenses?

In a study by Four Corners, high levels of mortgage stress have been associated with having high household spendings.

However, in another study by Roy Morgan, mortgage stress in relation to repayments, has decreased in the last 10 years from 27% to about 17%.

Although mortgage repayments have decreased over time due to low interest rates, people’s household spending has not decreased the same… contributing to the perception that more and more home owners are facing mortgage stress.

Elson Goh, senior lecturer at Curtin Business School, believes that low income earners are most at risk of mortgage stress, with 1 out of 3 people struggling to meet repayments.

“They have got small incomes… If they don’t have a mortgage, they’ll be paying rent. So either way they have a big commitment in terms of housing, with repayments of about 60% of their total salary,”

“For high income earners depending on what type of house they buy, there are still certain avenues to eliminate mortgage stress, like downsizing or renting,” he said.

The issue here, according to Mr Goh, is that the households are not flexible enough. The home owners don’t have enough knowledge or discipline to cut back on discretionary expenses. Whilst they might be in financial stress, that’s their own doing. Cutbacks and limits on unnecessary spending are essential in reducing stress.

Alix Rhodes, Deputy Executive Director from the Property Council of Australia, thinks that mortgage stress can affect a number of households, regardless of their income bracket.

People who have bought into a heated property market, where they may have been lured into purchasing properties that are over-valued or other factors like employment changes and interest rate changes; all contribute to mortgage stress and inability to make loan repayments.

Government assistance, such as the $10,000 first home buyers grants can help young people get into the market. However, other costs such as stamp duty, which can cost approximately $20,000 per dwelling, can inhibit people entering the market as well as moving through it.

Ms Rhodes believes in the current market, with interest rates being low and WA property values being the best they’ve been in 5 years, now is a good time to buy property.

“It’s a very competitive market, so my advice is to shop around. Although the banks are being competitive, safeguard yourself by locking in an interest rate for a period of time,”

“Also, ensure you’re not spending anymore than 30% of your household income on your mortgage,” she said.

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