Forty percent of Australians who bought homes after the global financial crisis are facing mortgage stress, and many will be forced to sell because their homes are worth less than their mortgages, reports show.
For homeowners Cassandra and Matthew Rouse, the only option was to sell their home in the New South Wales suburb of Newcastle, to clear debts and start again with a clean slate.
“For us it was very tight; we couldn’t afford to go out and enjoy ourselves as a family. We had to count every penny we had,” she told ABC News program 7:30.
Like thousands of other Australians they discovered that what seemed like a manageable mortgage became anything but. A growing family and the spiralling cost of living changed everything.
The family sought help from solicitors at the NSW Consumer Credit Legal Centre, which receives 17,000 calls from people who need advice every year, many of them struggling to meet their repayments.
Alexandra Kelly, solicitor at the centre, told ABC News: “I think there is a real optimism that people generally have that things won’t go wrong, and when they do go wrong there is very rarely a Plan B.”
Banking analyst, Martin North from Digital Finance Analytics, said many people put their head in the sand and hope it will go away, relying on the Reserve Bank to cut rates.
“Of the 400,000 first home buyers who entered the market in 2008 to 2009, 40 percent of those are now in some degree of difficulty and about half of that 40 percent are at the more severe end of mortgage stress may have to refinance or have to sell the property,” he told 7:30.
“I’m not talking about low-doc loans or flawed lending policies or anything like that; these are standard, meat-and-potato loans made to first home buyers who ticked all the boxes in terms of affordability and those other factors at the time.”
North said there are two main reasons that families are facing financial hardship; interest rates and the rising costs of living.
“They came into the market when rates very low, interest rates then moved up quite significantly,” he said. “Over the last little while, the costs of living have lifted quite dramatically, particularly for first home buyers and I’m thinking about the rates, water, electricity and gas and even child care; all of those are way above the CPI rates that are normally quoted.”
That was the case for the struggling Rouse family: “We had electricity, water, land rates, everything just kind of piled on top of us at the same time,” Mrs Rouse said.
Despite recent rate cuts, many borrowers are doing it tough and their financial situation could worsen, warns Wayne Stewart of the Real Estate Institute of NSW.
“When interest rates are low they can only go in one direction and that is upward, so you should always take into consideration with your due diligence and extra couple of percentage points for when interest rates do go up you can plan forward,” he told ABC News.
“Over the last five or six years we certainly haven’t seen the capital growth in property that we may have seen consistently from 10 to 20 years ago.”
“People who buy property, expecting to make quick capital gains are buying property for the wrong reasons. Buying property is about long term capital growth, it’s about security for your family, security in bricks and mortar and that’s the way it should be treated.”
As for the Rouse family, who have since sold their home with plans to move in with relatives for a while, they have learned a tough lesson.
“Next time I’m really going to really think about our situation and what can happen down the line; there could be illnesses, my husband could be out of work we have to look at all the fine [details] I think,” she said.