Household financial comfort has fallen significantly across regional Australia following the recent bushfires.
ME Bank’s latest Household Financial Comfort Report found that over the six months to December 2019, the financial comfort of metropolitan households rose by 3% to 5.76 (out of 10) - a near record low.
But on the other hand, financial comfort for regional households fell by 4% to 5.08, which is the lowest point seen in eight years.
This means the gap between regional and metro households is a record 13%, and twice the historical average recorded by ME of 7%.
ME consulting economist Jeff Oughton said the now infamous bushfires were partly to blame.
"The sharp fall in financial comfort in regional areas is likely a result of ongoing drought and recent bushfire catastrophes, which have significantly lowered already low levels of financial comfort," Mr Oughton said.
"Comfort with cash savings’ fell 9% and the ‘ability to deal with financial emergencies’ fell 7%, while long-term retirement comfort deteriorated, with ‘anticipated standard of living in retirement’ down 7%."
According to the data, regional Queensland had the largest fall in comfort (14%) to 4.95, falling below regional NSW (5.09) and Victoria (5.20).
“In contrast, the improvement in the financial comfort of metropolitan households reflected significant gains in all key drivers, with record high levels of comfort approached in Sydney (up 1% to 5.94), Melbourne (up 3% to 5.91) and Brisbane (up 10% to 5.82).”
ME's survey, which is conducted on a bi-annual basis and surveyed more than 1,500 people across the country, was conducted in early December 2019 when the bushfires were generally at their most intense.
But given that the fires still raged into early February, ME has admitted the survey does not capture the full impact of the fires on some regions' financial comfort.
Record low mortgage rates helping
There are 11 key drivers of household financial comfort listed in ME's survey, such as 'changes to your financial situation' and 'ability to cope with an emergency', and 10 of the 11 drivers improved.
The biggest improvement however was seen in ‘comfort with debt’, which rose 5% to 6.55 out of 10, another record high.
Lower home loan rates result in lower mortgage repayments to those who get them, and the results show comfort with debt rose particularly among those with mortgages on their homes or on an investment property.
The table below displays some of the lowest-rate variable home loans currently on the market for owner occupiers:
Base criteria of: a $400,000 loan amount, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the product provider’s web site. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 03 July 2020. View disclaimer.
“Significantly lower home loan rates and relatively low and stable unemployment rates helped to significantly improve ‘comfort with debt’ – especially in major capital cities, while a partial reversal of the fall in residential property prices in eastern capital cities and expectations of further price gains have also eased gearing concerns,” Mr Oughton said.
“Those households paying off a mortgage felt they were far better off than those renting or who already own their homes.
"When it came to investors with debt, results show they feel they’ve benefited the most (60% ‘better off’) from the flow on to record low mortgage rates – an indication of the high level of gearing among residential property investors in Australia.”
Overall, slightly more households reported being better off (27%), compared to worse off (23%) as a result of the historically low cash rate of 0.75%. The remainder said they weren't affected.
Mortgage stress eases but remains high
Mortgage stress - generally defined as a household putting 30% or more of its disposable income towards mortgage repayments - predictably fell thanks to lower interest rates.
Stress levels fell by 2 points in the six months to December, but remained extremely high at 41% of households.
Overall, over a third (36%) of households indicated their ‘financial situation had improved over the past year, thanks to less concern over living cost pressures fewer falls in income and improved employment status and savings in the bank.
"Comfort with the ability to manage a financial emergency’ only saw a slight improvement (up 1% to 4.82), but was significantly lower than average among single parents (3.17 out of 10)," Mr Oughton said.
"It also remains the lowest of all drivers across the Household Financial Comfort Index – especially for regional areas."
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 2019. They are (in descending order): Credit Union Australia, 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 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
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 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.
*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
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