A significant percentage of Australians have concerns about their financial comfort, given recent economic forecasts of rising household costs, growing risk of mortgage stress, and relatively slow growth in incomes.
According to the 12th biannual Household Financial Report from ME Bank (based on a survey of 1500 Australians), Aussie households are generally doing okay at present, with the report’s overall financial comfort index rising 2% to 5.51 out of 10 for the six months to June 2017. However, Aussies don’t expect this situation to last, with future expectations having fallen by 4% over the past 18 months.
“Our greatest worry is the higher cost of living without any pay rises.”
Couple with older children, New South Wales
Rising cost of necessities
Just making ends meet is the leading concern of surveyed Australians, with almost 40% of households whose financial situation worsened over the past 12 months putting the blame primarily on increases to the cost of electricity, gas and petrol, despite relatively low retail inflation.
This situation isn’t being helped by relatively sluggish growth in wages. According to the report, while 51% of Australians typically spend all their income or more at the end of each month, only 32% of households reported higher incomes over the past 12 months.
Interest rate worries leading to mortgage stress
Many of Australia’s big and small lenders have been raising their variable home loan interest rates out of cycle with the RBA, which has kept the official cash rate at the record low of 1.5% since August 2016. But with central banks around the world raising their cash rates, and financial commentators speculating that future rate rises could be on the cards for Australia, many Aussies are understandably concerned about the impact that further rate rises could have on their mortgages, considering that most Australian mortgage holders are paying a third or more of their post-tax income in mortgage repayments – a common benchmark for measuring mortgage stress.
However, these feelings were not consistent across the entire Australian property market. Owner occupiers were found to be more concerned (53%) about the risk of rate rises than investors (35%). Some Aussies expected to be better off if interest rates rise, including outright home owners (38%), Aussies with incomes of $100,000 and higher (36%) and retirees (32%). According to ME Bank, these figures reflect a growing income, housing and financial comfort divide across Australian households.
Income and underemployment
The financial comfort of Australians is also being affected by sluggish income growth and fewer full-time opportunities, further exacerbating an existing divide between the country’s richest and poorest citizens.
According to the ME Bank report:
- Australians with incomes less than $40,000: 45% reported income cuts in the past year, and saw no change in their financial comfort.
- Australians with incomes from $75,000 to $100,000: 44% saw no change of income over the past financial year
- Australians earning more than $100,000: Less likely to report an income cut (17%) and most likely to report an income rise (46%).
- Australians earning more than $200,000: Saw a 10% increase in their level of financial comfort.
For some Australians, the struggle is less about their pay, and more about finding enough work to support themselves. According to the ME Bank report, 27% of casual and part time workers are eager to increase their hours, while 20% are wanting to make the jump to full time.