Mortgage Time Bomb

By Dave Fleming : 24 November, 2017

Hot Off The Press, Courtesy
Of Channel 9 News

Almost one million Aussie households are
staring down a mortgage ‘time bomb’

mortgage debt spelled out on scrabble tokensAlmost one million middle-income Australian households are facing a mortgage time bomb as soaring living costs plunge families into repayment stress.

A new analysis by Digital Finance Analytics (DFA) has shown that the number of households currently in mortgage distress has risen by 20 percent in the last six months to 910,000.

At the current rate, more than one million households will be struggling to make repayments on their home loan in 2018.

Primary factors ratcheting up the stress faced by families include stagnant wage growth, living pay cheque to pay cheque and the looming threat of a rise in interest rates.

Martin North, Principal of Digital Finance Analytics, says that the risks of more middle-income families borrowing enormous loans from the banks are rising.

“Risks in the system continue to rise, and while recent strengthening of lending standards will help protect new borrowers, there are many households currently holding loans which would nothand calculator with Mortgage showing in the calculation screen now be approved,” said North.

“The number of households impacted are economically significant, especially as household debt continues to climb to new record levels. Mortgage lending is still growing at three times income.
“This is not sustainable.”

Broken down by region, NSW had the most households in stress with 238.703, followed by Victoria with 250,259, Queensland with 162,726 and WA with 121,393.

Households are defined as being “stressed” when their net income does not cover ongoing costs, including repayments on their home loans.

Households that have a tight budget but manage to make ends meet are defined as being “mildly stressed”, and those who are unable to make a mortgage repayment within the next 30 days are defined as being “severely stressed”.

word cloud with debt as the central wordNine Network’s Finance Editor Ross Greenwood said that it’s “pretty obvious” why families are struggling.
“Families are struggling with rising costs. Rising health insurance premiums, rising electricity bills and on top of that, many families have taken on very big mortgages,” said Greenwood.

“Now if their wages aren’t growing fast then quite clearly they are going to struggle.

“Another worrying statistic is that there are now 52,000 households that this organisation has identified that are now 30 days behind on their mortgage repayments, that means technically banks could walk in and close them up.”

Independent Analysis

I have been in the mortgage brokering industry now for approximately twenty years and I have now seen a whole generation of Australians take out mortgages who have no experience of what a 7-8% interest rate mortgage is. Many of these borrowers insisted on borrowing to their maximum capacity. Although in the last six months banks have been tightening up on what any new borrowers can get loan amount wise, there is still many years of previous borrowers who pretty much were able to borrow almost anything they wanted.

Recently we have seen not only banks but many other commercial enterprises prey on the Australian consumer with increased prices (energy companies being one of the notable ones). Although many borrowers have budgeted diligently there would be very few of them that would have factored in some of the essential services price rises we are seeing.

The Solution

For many there may not be a solution, however our advice is to drill down on your budget and find every last cent you can find and start paying it onto your mortgage. I would recommend you beg, borrow, and tighten your budget belt to find whatever you can to pay toward your home mortgage in order to escape the mortgage stress that may be headed your way in the not too distant future.

Also, get with your home mortgage broker, because if you have a 4 in front of your home mortgage you are probably paying too much.

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