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“We are still in the foothills of the financial crisis, and as stimulus is withdrawn further and unemployment continues to rise, stress will deteriorate.”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

Did you find this helpful? Why not share this news?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about home loans

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 www.financialcounsellingaustralia.org.au.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Does each product always have the same rating?

No, the rating you see depends on a number of factors and can change as you tell us more about your loan profile and preferences. The reasons you may see a different rating:

  • Lenders have made changes. Our ratings show the relative competitiveness of all the products listed at a given time. As the listing change, so do the ratings.
  • You have updated you profile. If you increase your loan amount, the impact of different rates and fees will change which loans are the lowest cost for you.
  • You adjust your preferences. The more you search for flexible loan features, the more importance we assign to the Flexibility Score. You can also adjust your Flexibility Weighting yourself, which will recalculate the ratings with preference given to more flexible loans.

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

Mortgage Calculator, Deposit

The proportion you have already saved to go towards your home. 

How much information is required to get a rating?

You don’t need to input any information to see the default ratings. But the more you tell us, the more relevant the ratings will become to you. We take your personal privacy seriously. If you are concerned about inputting your information, please read our privacy policy.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

Mortgage Calculator, Loan Amount

How much you intend to borrow. 

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

Why should you trust Real Time Ratings?

Real Time Ratings™ was conceived by a team of data experts who have been analysing trends and behaviour in the home loan market for more than a decade. It was designed purely to meet the evolving needs of home loan customers who wish to merge low cost with flexible features quickly. We believe it fills a glaring gap in the market by frequently re-rating loan products based on the changes lenders make daily.

Real Time Ratings™ is a new idea and will change over time to match the frequently-evolving demands of the market. Some things won’t change though – it will always rate all relevent products in our database and will not be influenced by advertising.

If you have any feedback about Real Time Ratings™, please get in touch.

What does going guarantor' mean?

Going guarantor means a person offers up the equity in their home as security for your loan. This is a serious commitment which can have major repercussions if the person is not able to make their repayments and defaults on their loan. In this scenario, the bank will legally be able to the guarantor until the debt is settled.

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.

What is the amortisation period?

Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.