Stress is weighing on homeowners as housing costs rise.
Stress is weighing on homeowners as housing costs rise.

Close to 1 million households under mortgage stress: report

AUSSIES finished last year under increasing mortgage stress, new data has revealed, leading industry figures to warn of a potential increase in home loan defaults in 2018.

Research firm Digital Finance Analytics' latest mortgage stress and default analysis update estimated more than 921,000 Australian households (29.7 per cent) are under mortgage stress; a rise of more than 10,000 households since November. Meanwhile, 24,000 of those were in severe stress. DFA principal Martin North believes 54,000 households are currently at risk of 30-day debt defaults over the next 12 months.

Making matters tougher, the ratio of household debt to income more than doubled between 1995 and 2015, from 104 per cent to 212 per cent, according to OECD data.

Analysing the research, Louis Velasquez, CEO of specialist lending firm Lucky Money, said a melting pot of rising living costs, stagnant wage growth and the likelihood of future rate rises meant danger was on the horizon for homeowners.

"Australian households facing mortgage stress has risen by nearly 20 per cent in the past six months," Mr Velasquez said. "This worrying trend means net incomes are not covering ongoing costs in nearly a third of Australian households; that's up from about 25 per cent in mid-2017."

BEWARE: How to avoid a debt trap

Mortgage stress is on the rise, research has revealed. Picture: iStock.
Mortgage stress is on the rise, research has revealed. Picture: iStock.

"People are unable to meet mortgage repayments from current incomes and are managing increasing debt by putting more on credit cards."

Mr Velasquez claimed people were prioritising paying off their home loans and neglecting bad or unsecured debts such as credit cards and personal loans.

Meanwhile, Gateway Credit Union's recent Mortgage holders Sentiment Report revealed that 56 per cent of respondents who are paying off a mortgage or have done so in the past found their home loan to be a lifestyle-limiting burden.

Gateway CEO Paul Thomas pointed to ABS estimates that 29 per cent of households were classified as 'over-indebted', while those with a mortgage made up the lion's share of 47 per cent.

"It would seem Australians still want to achieve the dream of owning their own property, even at the expense of financial stress," Mr Thomas said. "As a result, their home loan becomes a pain-point rather than an advantage."

The report also found that sentiment had dropped markedly in recent times, with just 40 per cent claiming their home loan was somewhat of a benefit, down from 45 per cent in 2015.

"It's not surprising to find many view paying off their home as an encumbrance," Mr Thomas said. "While a mortgage is considered 'good debt', borrowers need to make sure they're not overstretching themselves and taking on more than they can handle."

CREDIT: Aussies putting critical expenses on credit cards

The home ownership dream may be fading for some.
The home ownership dream may be fading for some.

 

Louis Velasquez's tips to avoid mortgage stress:

-Stop spending: Don't spend money you don't have. Stay within your means.

-Unsecured debts: pay off credit cards first or consolidate all debt into your home loan.

-Prioritise debt: It's not all about your mortgage. Focus on reducing all debt.

-Ignore freebies: There's no such thing as free money so ignore offers to increase credit limit.



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