Are you facing mortgage stress? More than 100,000 Australians could be too

Pressure is building on more Australians after yet another hike in the cash rate was announced by the RBA. To make matters worse, according to a report by fintech Otivo, more than 100,000 Australians are set to fall victim to mortgage stress with the wealthiest suburbs set to be hit with the brunt of it.

What is mortgage stress?

Mortgage stress, in essence, is a term used to describe home owners who are struggling to keep up with paying their bills and mortgage repayments. Although there isn’t a concrete definition, it is generally described as homeowners who are spending at least 30% of their pre-tax income on mortgage repayments alone. 

What are the dangers of mortgage stress?

Mortgage stress has a couple of risks associated with it, the first of which is mental. The strain of barely making ends meet is not a good feeling at all and it can seriously affect people's mental wellbeing. 

A second and less obvious risk is turning people into mortgage prisoners. What are mortgage prisoners? Basically, a mortgage prisoner is anyone who cannot refinance their loan because of their low or negative equity. This can create a negative feedback loop that leads to increased financial stress and possible even default.

Why is mortgage stress on the rise?

Mortgage stress has been exacerbated by the cost of living crisis, inflation, and rising interest rates that, according to Otivo, have reached a 10 year record high. With everyday Aussies finding it harder than ever to deal with tightening economic conditions, it’s no surprise that some are feeling the brunt of that on their mortgage repayments. 

Who is most at risk of mortgage stress?

According to Otivo’s report, the people currently most at risk are residents in Sydney, Melbourne, and Brisbane with many of the most wealthy suburbs and individuals feeling the brunt of the stress. This belief is most likely tied to the higher price growth seen in the high end suburbs of these major capitals, where meeting regular mortgage payments has become more challenging in recent times. 

Furthermore, we can see the spread of borrowers who are mortgage stressed has affected a sizeable portion of earners across different income brackets, from those on about $1,133 up to $4,633 per week.

* Source:  The February 2023 Otivo Mortgage Stress Report

What can be done to combat mortgage stress?

From what we have seen, mortgage stress can have some seriously negative consequences as it begins to affect more and more Australian borrowers. Some will be in some degree of a mortgage prison, approaching it, or generally just making ends meet. So, what can we do to counteract these pressures and get ourselves back on track? 

• Tighten the belt: Reduce spending to only the things that you need.
  
• Start saving: Even the tiniest amount can help in a pinch.
  

• Utilise an offset account: If you have an offset account, it can help to start putting more of your savings into it so that it can help relieve some pressure.
  

• Make extra repayments: Provided your loan allows this, it means you can access your redraw facility whenever things get dicey.  
  

• Talk to a financial advisor: Discussing with someone who can effectively analyse your situation and help you to find off-ramps may be helpful for some.  
  
  

Mortgage stress is weighing down on many as we can see, and although some cannot refinance their loans to a better deal, you might be looking to do just that. 

At Mozo we can help you compare the top home loan refinancing providers so that you can get the best deal possible for you.