1.1 million households under mortgage stress: DFA

author-avatar By on January 10, 2020
1.1 million households under mortgage stress: DFA

Photo by Zach Vessels on Unsplash

Falling home loan rates hasn't stopped the number of households experiencing mortgage stress from rising.

The Digital Finance Analytics (DFA) Mortgage Stress Trends Data to December 2019 found the number of households in mortgage stress - defined by DFA as when household cashflows are negative - rose to 32.7% of all borrowing households. 

The number for October was 32.2%

That 32.7% figure represents 1.1 million households across the country, with more than 83,000 households predicted to be in default, despite the lower cash rate and "deeply discounted mortgages". 

Stress trends

Source: DFA

"Stress is assessed in cash-flow terms, and when money in is not sufficient to cover the costs of the mortgage and other regular outgoings, the household is flagged as stressed," DFA principal Martin North.

"Granted they may have the capability to tap into deposits, pull down on credit cards, or even sell property, but on a regular basis they are in strife. We find a significant gap between those we assess as at risk, and those who believe they do have financial difficulty.

"Many adopt the head in the sand approach and hope things will improve, but given the current economic outlook, we think that is a courageous stance to take."

The graph above shows Australia's average debt-to-income ratio remains high at 186.5, although there has been a recent drop from 191.

The table below displays a selection of variable-rate home loans on offer, featuring a low-rate pick from each of the following three categories: the big four banks, the top 10 customer-owned banks, and the larger non-banks.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 18, 2021. View disclaimer.

Mr North says he expects stress levels to continue to rise given current economic conditions.

"Households would do well to draw up a cash flow, to identify money in and money out, determine which spending is essential and prioritise accordingly," he said. 

"And remember, if you are in financial difficulty banks have an obligation to assist, so go talk to them, early. Avoid the head in the sand posture, as it leaves other parts horribly exposed."

He also said DFA would soon be releasing its household financial confidence (HFC) index, which highlights the challenging issues for households. 

The HFC index for October 2019 was at its lowest point ever of 83.7, with the increasing cost of living a concern for 91% of the 50,000 homeowners surveyed. 

Which states are the most stressed? 

New South Wales, Victoria and Queensland reportedly have the highest levels of stress in the country, which may have something to do with the fact these states have the most expensive median property values in the country, according to CoreLogic data. 

Victoria has a proportionally higher stress reading compared to New South Wales, however, with both of these states having just over 40% of households in mortgage stress. 

The Northern Territory, South Australia and Tasmania have some of the lowest levels of mortgage stress but the highest proportion of households in difficulty, while West Australia has the highest risk of default over the next 12 months at 4.2%. 

Stress by state

Source: DFA

Across the top postcodes, Toowoomba 4350 (48%), Liverpool 2170 (49%) and Fountain Gate 3805 (59%) have the highest portion of households in stress. 

Even bigger numbers can be seen when divided by regions. 

Central West Queensland has a mortgage stress rate of 75%, although this is only 300 households, while Alice Springs has a 65% stress rate with 2,000 households exposed.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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