One in 10 struggling to make mortgage repayments

One in 10 struggling to make mortgage repayments

The number of people struggling to repay their mortgage has more than doubled since the early days of the pandemic, data from the nation’s statistical agency reveals.

About 11 per cent of people struggled to repay their mortgage in October, according to a survey of 1500 people by the Australian Bureau of Statistics (ABS), representing an increase of 6 per cent since June.

The rising mortgage stress was owed to relief measures coming to an end combined with high rates of unemployment, Martin North said, principal of Digital Finance Analytics, a research, analysis and consulting firm.

“Despite the return to work as the lock down is eased, the reduction in JobSeeker, JobKeeper and the need to renew mortgage payments are all offsetting the better job news,” he said.

“We are still in the foothills of the financial crisis, and as stimulus is withdrawn further and unemployment continues to rise, stress will deteriorate.”

About 14 per cent of people deferred their mortgage repayments, the Household Impact of COVID-19 survey found, while 5 per cent had to have a bill or rate payment deferred or reduced.

The findings come as loan deferrals for approximately 900,000 homes and businesses come to an end, and as the number of people late on their mortgage repayments has increased.

Most people are likely to recover. Most.

The Australian Banking Association (ABA), the group advocating the interests of the banking industry, revealed repayments have resumed on 600,000 deferred loans.

“This is an encouraging sign that most Australians are through the worst”, Anna Bligh said, chief executive of the ABA.

“... The good news is that the majority are now bouncing back as they restart their loan repayments.”

Banks remain in contact with the remaining 300,000 mortgage holders to help them evaluate their options, including the 145,000 who have deferred their home loans.

These options include extending mortgage deferrals until 31 March, and lowering mortgage repayments by either converting them to interest-only loans, or by stretching the loan over a longer term.

Another option includes people selling their homes.

“Don’t wait till you are in over your head, talk to your bank, they’ll help you find a way through this,” Ms Bligh said.

“Don’t tough it out on your own.”

Some people are having a harder time than others

The recovery has been described as “uneven” and “bumpy” by Reserve Bank of Australia (RBA) Governor Philip Lowe, as the financial brunt of the pandemic is impacting some people more than others.

And the task of getting everyone back on track financially is likely to get harder over time.

About 10 per cent of people faced problems getting a job in October, the ABS Household Impact survey found, an increase of 4 per cent since June.

Since the pandemic struck in March, there’s still about 428,100 people who have not regained employment since losing their jobs, according to September figures from the ABS.

The nation’s unemployment rate remains high at 6.9 per cent -- above its typical level of 5.5 per cent -- and the RBA forecasts it’ll reach 8 per cent by the end of the year.

Overdue: mortgage delinquencies increase

The number of people who are late on their mortgage repayments by 30 days or more has increased across the country during the pandemic, analysts said.

Delinquencies increased nationally by 0.05 to 1.99 per cent in the year to May 2020, according to Moody’s Investor Service.

“Mortgage delinquency rates increased in 40 Australian regions over the year to May and fell in 47 regions,” the analysts said.

“Over the next year, mortgage delinquency risks will be high in regions with large economic and labour market dependence on industries such as tourism, hospitality and retail, which have been hit hard by coronavirus disruptions.”

Three states anchored the nation’s performance with generally rising delinquency rates.

About 0.29 per cent more people were 30 days or more late on their mortgage repayments in the Northern Territory, pushing it to 2.71 per cent -- the largest increase across the country.

Victoria’s delinquency rate increased by 0.20 to 1.85 per cent -- its highest level since 2005. Meanwhile, New South Wales’ increase of 0.23 pushed its rate to 1.71 per cent -- a high not seen since 2013.

Others are benefitting from relief measures

There is a divide between the people struggling and the people coping financially during the COVID-19 pandemic.

People still employed are enjoying record housing affordability, according to Moody’s Investor Service, as they spend a smaller portion of their pay to service their mortgages.

Two income households were spending 23 per cent of their monthly earnings on mortgage repayments in September, Moody’s said. This was a drop from the ten year average of 26 per cent.

“The affordability of apartments and houses improved in all capital cities over the year to September,” the analysts said.

The increase in housing affordability is largely owed to two factors.

The first has to do with property prices falling for five months straight -- though they stabilised in the most recent month.

While the second concerns the record low cost of servicing mortgages, a byproduct of relief measures introduced to help people endure the financial hardship brought by the COVID-19 pandemic.

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What is mortgage stress?

Mortgage stress is when you don’t have enough income to comfortably meet your monthly mortgage repayments and maintain your lifestyle. Many experts believe that mortgage stress starts when you are spending 30 per cent or more of your pre-tax income on mortgage repayments.

Mortgage stress can lead to people defaulting on their loans which can have serious long term repercussions.

The best way to avoid mortgage stress is to include at least a 2 – 3 per cent buffer in your estimated monthly repayments. If you could still make your monthly repayments comfortably at a rate of up to 8 or 9 per cent then you should be in good position to meet your obligations. If you think that a rate rise would leave you at a risk of defaulting on your loan, consider borrowing less money.

If you do find yourself in mortgage stress, talk to your bank about ways to potentially reduce your mortgage burden. Contacting a financial counsellor can also be a good idea. You can locate a free counselling service in your state by calling the national hotline: 1800 007 007 or visiting

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How common are low-deposit home loans?

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Not everyone can be a guarantor. Lenders will generally only allow immediate family members to act as a guarantor but this can sometimes be stretched to include extended family depending on the circumstances.

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