Mortgage stress puts financial strain on Aussie households: ME Bank

If you’ve been pulling the rein on spending or even dipping into your savings account to pay down your mortgage and electricity bills, you’re not alone. 

New research from ME Bank reveals stagnant wages and a tougher jobs market along with high household debt have taken a toll on Australia’s financial comfort, making it harder for many Aussies to make ends meet. 

ME Bank’s Household Financial Comfort Report (HFCR), released today, found that despite lower official interest rates and the federal government’s tax cuts, Aussie households have grown less comfortable with their finances since February. 

The cost of necessities remain their biggest financial ‘worry’, with 44% saying they felt pressured by these day-to-day expenses. 

About 40% of surveyed households spend all their monthly income, while one in five didn’t think they could raise $3,000 in funds to help them handle an emergency. 

As for Aussies with a bit of spare cash, ME’s Consulting Economist Jeff Oughton said they’re choosing to stash it away. 

“What you find is the precautionary savings level has risen over the last six months, and for those who are doing it tough - who are constrained by their income - their overspending has also picked up,” Oughton said. 

Working Aussies hit the hardest 

Comfort among working Aussies fell the sharpest, according to ME’s report. 

Over 1 in 2 employees believed it would be difficult to find a new job, while many part-timers and casual staff said they wanted to work more hours. But full-time workers didn’t completely dodge the bullet either - only about one-third of households reported getting a pay rise over the past year, even though the overall cost of living went up. 

Housing debt a major source of stress

While financial comfort is improving for high-income households including those earning over $200,000 a year, it’s not looking great for Aussies with a mortgage or monthly rent to budget for.

“There remains high levels of housing debt worry and actual payment stress among Australians,” Oughton said. 

Almost two-thirds of surveyed renters said they’re paying over 30% of their income to rent each month, which “partly reverses the improvement [in their financial comfort] reported in the previous two surveys,” said Oughton. 

And with property prices falling over the past year, Aussie households with a mortgage have also suffered a blow to their net wealth. In other words, their house has sunk in value, but they still owe large amounts of home loan debt - and that’s left many homeowners worried about their financial position. 

Because house prices were high for a long time, some people borrowed a lot to get into the market - sometimes as high as 95% of the property value. But with home values now dropping, these borrowers could find themselves unable to refinance their mortgage. 

That’s because most lenders would only consider your refinance application if you have a Loan to Value Ratio (LVR) of 80-90%, and even if you did manage to reduce your home loan balance to 90%, you may still be charged thousands of dollars in Lenders Mortgage Insurance.  

Is there a bright side? 

But it’s not all doom and gloom, with property prices ‘bottoming out’ and expected to go back up again. 

“It’s a positive sign,” Oughton said. “If [Aussies] saw housing prices go down a lot more, they would be even more cautious with their savings and spend less.” 

Higher home values on the horizon could mean good news for Aussies with a mortgage. And with some home loan rates now below 3.00%, they could even refinance their old home loan and get their hands on a better deal. 

Want to know more about how home loans in the market stack up against each other? Head over to our home loan comparison table, or take a look at our guides for the must-knows before you buy or refinance your home.