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‘This is a big deal’: 1.5 million households in mortgage trouble

Houses perched on edge of coastal sea cliff. West toward Sydney city on the horizon
Image: Getty. (Andrew Merry via Getty Images)

The number of Australian households in mortgage stress has increased to more than four-in-10 as COVID-19 pressures continue to mount for families.

That’s equivalent to around 1.5 million households, Digital Finance Analytics principle Martin North told Yahoo Finance.

And the problem will likely only get worse once JobKeeper and the JobSeeker Coronavirus Supplement expire at the end of March.

“This is a big deal and it’s something we should definitely be watching,” North said.

“[Mortgage stress] was 32 per cent before COVID hit and it’s now 41 per cent.”

Digital Finance Analytics’ mortgage stress metric measures 52,000 households’ total financial flows, including mortgage repayments. Households in mortgage stress are those that cannot easily cover their expenses, including their mortgages.

Image: Digital Finance Analytics.
Image: Digital Finance Analytics.

S&P data released this week also found that Australian mortgage arrears are rising as JobSeeker and JobKeeper measures taper.


It found that while the broader economic recovery and record low interest rates will help most borrowers, not all households are seeing the benefits. Homes more than 30 days in arrears rose to 1.37 per cent in December 2020, compared to 1.28 per cent in December 2019.

A recent Finder survey of 446 Australian borrowers also revealed that approximately one third of mortgages are currently in arrears, equivalent to 899,000 home loans behind on their loan repayments.

“We expect COVID-19-related arrears to more meaningfully surface beginning in the second quarter of 2021, following the expiration of mortgage-deferral periods in March 2021,” S&P said.

Watch: What the experts think 2021 means for property.

It noted arrears increases are more notable in inner-city areas as renters have moved out and international traffic has dropped. However, this could change once borders open and CBDs come back to life.

‘Strapped and struggling’

“There is a considerable proportion of [households] that are really strapped and struggling, and it’s only going to get worse because some of them are still on JobKeeper and JobSeeker,” North said.

“We have people who have less income coming in because they’re working less hours, or they’re working gig jobs and doing part time work… but also we’ve got these other cost pressures, with regard to the cost of living.”

While Australia’s rate of savings has also increased over the last year, North warns it’s an inaccurate metric as the savings rates diverge notably between higher and lower income households.

“We have created a really distorted economy of these two camps: the ones who are doing really well, and the ones who are not,” he said.

“Unfortunately, I don’t think there’s enough focus on the large number of people who are really up against it.”

A new class of ‘mortgage prisoners’

S&P noted that a common way for borrowers to escape arrears is through refinancing.

However, the ability of Australians already behind to refinance is significantly curtailed, North said.

“A lot of those under financial pressure can’t switch to the lower mortgage rates, so you’re a bit of a mortgage prisoner if you’re in the wrong bucket,” North said.

He said struggling borrowers are not appealing options for lenders, and as such financial pressures can become entrenched.

“Some of the people in mortgage stress are paying on average 1 per cent higher than the people who have been able to refinance and switch to the lowest rates,” he said.

In fact, of the 83 per cent of borrowers who were planning to refinance, 45 per cent are unable to do so, Mozo research released in November 2020 found.

“The majority of mortgage holders (64 per cent) feel their mortgage is incredibly high. A concern for many homeowners is an equity plummet, which could tip them into mortgage prisoner territory, or deepen their inability to switch,” Mozo director Kirsty Lamont said.

“If you are worried that you’re no longer in a position to refinance, the first step is to do your research and see what competitive rates are on the market, then talk to your bank about what they can do for you.

“If they’re not willing to give you a more competitive rate, consider how you can become more appealing to another lender. This includes knocking out debt, lowering your day-to-day expenses and paying off as much of your loan as possible.”

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Image: Yahoo Finance
Image: Yahoo Finance