2.3 million families estimated to be in mortgage stress, 100,000 of which are nearing risk of defaulting.
COVID-19 has impacted almost every sector of the Australian economy, and has effectively reduced Australians’ ability to make mortgage repayments. The latest research coming out of Digital Finance Analytics (DFA) indicates that close to 2.3 million Australian property owners are experiencing mortgage stress. Owner-occupiers in mortgage stress increased to 39.1% in June, which is equivalent to 1.47 million households. This comes despite the RBA’s and the banks concerted effort to reduce mortgage stress. The RBA reduced the cash rate to a historic low of 0.25% in March and has kept it at 0.25% since. Meanwhile the Australian Government, lead by Scott Morrison, has introduced measures to prop up Australian families and businesses during this pandemic. The banks have offered historically low Fixed Rates and they have offered financially stricken Australians the opportunity to defer there loans, at first for 6 months, and have since then extended the deferral period. Yet, these measures are not sustainable, and mortgage stress rates are expected to rise further as JobKeeper and JobSeeker are tapered off for many Australians starting in the coming weeks.
DFA principal Martin North noted that mortgage stress is an “early warning sign” of future failure.
“Of course they may have assets like deposits, or put more on credit cards, but generally households under pressure spend less, hunker down, and some two to three years later, end up selling or even defaulting,” he said.
More property investors in mortgage stress
DFA also indicate that close to 830,000 property investors are in mortgage stress. This is equivalent to more than half of mortgaged investment properties. With so many people unable to make rent, rental income is no longer sufficient to balance out the cost of ownership. As such, many investors are losing the ability to keep up with their loan repayments. Of these 830,000 investors, about 126,000 are considered to be “severely distressed”, with low occupancy or high repair costs being among the most common reasons for distress. About 59 per cent of the 2.8 million property investors in Australia have a mortgage. About 11 per cent of housing loans, worth a combined $192 billion, have been deferred temporarily, the latest data from the Australian Prudential Regulation Authority showed.
Is it a good time to refinance your mortgage?
Earlier this week, Reserve Bank of Australia (RBA) governor Philip Lowe urged those on a home loan to consider taking advantage of record-low home loan interest rates and shopping around for a better deal.
“I encourage people who haven’t already taken up the opportunity to do that to look at their mortgage rate and look for a better deal,” he said in an online speech on Tuesday.
Interest rates, both variable, and fixed, are at record lows, so now is an opportune moment for any property owner to shop around for a new mortgage deal. Essentially, if you have a 3 in front of your interest rate, you could be doing better, with many loan options now in the 2’s and even some going sub-2%. Of course, you ability to refinance and find an optimal loan depends entirely on your financial situation, and your lifestyle.
Keep in mind that generally borrowers living in their own home may have a higher chance of securing a lower rate than investors. Those with more than 20 per cent equity in their property may also have a stronger chance.
That’s where we come in at Finance Mutual Australia, we are experts at finding and negotiation the best loan terms to fit your lifestyle and financial needs. With a difference of 1.2% between the top and bottom rates, now could be the right time to reconsider your loan. Work with an expert, contact us today.
Here is an example using our loan comparison calculator:
Let’s say you’re an owner-occupier with a $400,000 home loan, on a 3.5 per cent interest/comparison rate over 30 years. If you refinance to a 2.7 per cent interest/comparison rate, it’s possible that you could bring your monthly repayments down by $173.79. While this might not sound like a lot of money, you could be saving $2,085.48 in one year, or $10,427.4 in the first five years. This assumes that your rate doesn’t move again in those five years.
*WARNING: The comparison rate is true only for a $400,000 loan for a term of 30 years and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Please see the assumptions on which the comparisons are made.