Gap between regional and metro Australia widens, finds ME’s latest Household Financial Comfort Report

By Niko Iliakis ·

ME’s biannual Household Financial Comfort Report was released today, and it reveals a stark rift between regional and metropolitan Australia.

The report considered 11 key drivers of financial comfort, and found that in the six months ending December 31, the gap between metro and rural areas has edged up to 13% — almost twice as high as the historical average of 7%.

A tale of two regions

While the second half of last year saw an overall improvement in financial comfort across Australia (up 2% to 5.59 out of 10), if we hone in on regional areas we find they’ve fallen on hard times.

According to the report, the financial comfort of households in regional Australia has dipped over the past six months by 4% to 5.08 out of 10. Regional Queensland recorded the steepest drop, plummeting 14% for a score of 4.95 out of 10.

“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,” said ME’s Consulting Economist, Jeff Oughton.

“‘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%.”

This contrasts sharply with metro areas, which have enjoyed improvements in employment status, increased cash savings, eased living cost pressures, and fewer falls in income. This saw financial comfort improve by 3%, bringing its score to 5.76 out of 10. 

Mortgage stress eases but still worryingly high

The report found that falling interest rates have done a lot to ease rates of mortgage stress across Australia, and our comfort with current debt levels has seen a marked improvement (up 5% to 6.55 out of 10), particularly in major capital cities.

While this is a welcome development, the overall picture is still a bit nerve-wracking. 41% of Australian households are directing more than 30% of their disposable income towards their mortgage. 

This is a major sticking point for the RBA, which has pinned much of its hopes for recovery on reviving a weak retail sector. With so much of Australians’ income tied up in sky-high mortgages, very little is being poured back into the economy.

Have last year’s rate cuts made Aussies’ lives easier?

27% of households reported being ‘better off’ thanks to the historically low interest rates, with a third of that group reporting they had increased the size of their mortgage repayments. 23% of respondents, however, said they were ‘worse off,’ while the remaining half reported they weren’t affected at all.

The current interest rate environment was most appreciated by investors, with 60% claiming they are better off as a result of last year’s three rate cuts. According to Oughton, this reflects "the high level of gearing among residential property investors in Australia.”

Renters, single parents feeling the squeeze

While many mortgage holders reported improved financial conditions, things are strikingly different for renters. 65% reported high levels of rental stress and low financial comfort, an increase of 3% from the previous report. 

Single parents fared much worse, registering the lowest levels of financial comfort of any household type involved in the survey. They were also the least confident in their ability to weather a financial emergency (scoring 3.17 out of 10, significantly lower than the average of 4.82).

How can you improve your financial situation?

Low interest rates may have eased some of the stress households are facing, but many might still be straining under the weight of their monthly repayments. If your mortgage is more of a drain on your finances than you’re comfortable with, it bears remembering that home loan loyalty doesn’t pay. 

Recently, the RBA urged Australians to take a more proactive role in their mortgage and either negotiate a better deal with their lender or refinance to one that more attractive rates.

To give you an idea of how much you could save, consider the following example. If you’re paying 3.73% p.a. in interest on a $500,000 loan (owner occupier, 25 years, LVR 80%). Your monthly repayments will be somewhere in the range of $2,565.

If, however, you switched to a home loan that offered interest rates of 2.74% p.a. (the current lowest in the Mozo database), you’ll be able to save $261 a month, or $3,132 over a year. For a look at what’s available, visit our home loan comparison page.