With most Australians now accepting the fact that it will take two incomes to be able to afford a mortgage there is a risk that not enough borrowers are considering what would happen if one of these incomes was lost.
Currently, more than two thirds of owner-occupier mortgages are held by two income households – a by-product of the increased participation of women in the workforce over the last century.
While not all dual income households would be at risk if one person no longer earned an income, a study by Roy Morgan Research estimates that almost 35 per cent of families would experience mortgage stress if even the non-main earner was to lose their job.
Percentage of all Australian owner-occupier borrowers at risk of mortgage stress
This is more than double the percentage of all owner-occupier borrowers who are currently considered at risk and shows a potentially dangerous trend.
“The biggest impact on mortgage stress is likely to be unemployment or a move to increased levels of underemployment,” said Norman Morris, Industry Communications Director, Roy Morgan Research.
“This analysis has shown that the loss of an income in a two income-household has more impact than a doubling of interest rates.”
For couples who are looking to start a family this is a dilemma that they will certainly come up against when they look at taking time off work to raise children.
But it isn’t just planned absences from work that should be considered, as losing a job or not being able to work due to a health reason would also result in a dangerous loss of income for these dual income reliant families.
Increase to risk of mortgage stress if the non-main income earner no longer contributed income
For borrowers who identify themselves as part of this group there are some precautionary steps to take to prevent the loss of one income having disastrous repercussions on mortgage repayments.
The first is to build up an emergency fund that would cover approximately 3-6 months of mortgage repayments. This fund would mean that if a dual income household was to drop down to one income they would have time to consider their next move without immediately having to worry about keeping a roof over their heads.
Depending on your loan you may also have access to a repayment holiday feature that would allow you to take a short break from making repayments until you figure out your financial situation, should you find yourself down an income. This is of course only a temporary solution so if you are planning to drop down to one income long term then it may be time to refinance to a lower rate loan to make repayments more affordable.
Some home loans will also have a feature that allows you to only pay off the interest on the loan for a period of time. This may assist in making repayments cheaper if one income earner needs to take a break from work. In the long run, this will increase the amount of total interest paid on the loan but as a temporary solution it can have its benefits.
At the end of the day, without long term planning it can be very hard to keep on top of mortgage repayments should there be a loss of one income. The best thing households fitting this description can do is to save and look into available features that will provide them with a level flexibility when they need it most.
Source: Graphs and research by Roy Morgan Research