Digital Finance Analytics (DFA) defines a house hold as under “mortgage stress” when they are cashflow negative.
“Stress is assessed in cash-flow terms, and when money in is not sufficient to cover the costs of the mortgage and other regular outgoings, the household is flagged as stressed,”
– DFA principal Martin North.
Other research firms define mortgage stress as a household paying more than 30% of their income on mortgage repayments. Under this definition there are over 2.3 million households under mortgage stress which I initially reported in July.
However, new data from DFA puts Australian household mortgage stress (households which are cashflow negative) at 40.1%, which equates to 1.52 million households. That’s a very concerning amount of households that are cashflow negative, which will likely only rise as the nations recession deepens. Following this trend is a likely increase in systemic mortgage defaults and forced sales.
The figures show that a massive 102,273 households are at risk of defaulting on their mortgages, a number which has remained around the 100,000 mark since July, with Tasmania, Victoria and Western Australia leading the way.
Since these numbers are based on the July/August period it is likely that the number of cashflow negative households in Victoria will increase further from the Stage 4 lockdown restrictions.
“Within the numbers there was a slide in Victoria in particular reflecting the latest lock down and the rising pressure on business there.”
– DFA principal Martin North.
The data found that young growing families and urban households, which includes many first home buyers, were the likely to be cashflow negative.
Rental stress also remains a significant issue, with over 41% of renters (1.7 million households) struggling to afford their rent.
The data also found that investors are struggling, with 25% (826,000 households) under water or trying to offload their investment properties as rentals slide and property values decline.
Property is on shaky ground at the moment, especially for investors. With 1.7 million households facing rental stress and no clear end in sight for this recession, property prices are positioned to drop at the sight of any new adverse economic conditions. If the fires in California and the Amazon are any indicator to go by, this year’s bushfire season may push Australian’s over the line and cause widespread forced sales in the hardest hit states.
What to expect in the coming year.
This data supports my previous claims that we will see systemic defaults in the upcoming months as the banks reign in the deferral programs and the government reduces jobkeeper/jobseeker support.
“Clearly the fiscal cliff, which is now legislated, will push more over the edge. Expect higher default levels over the next few month, more forced sales and less household consumption,”
– DFA principal Martin North.
The fiscal cliff has been post-poned, but it is still coming. Originally slated to end this month, The Australian Banking Association (ABA) extended the mortgage deferral period by another four months for customers experiencing ongoing financial difficulty.
Similarly jobkeeper and jobseeker were both originally slated to end this month and have been post-poned to January 2021. However, much like the mortgage deferrals, the programs have been restricted, as access is gradually restricted to the most dire cases.
I expect mortgage stress to continue to worsen through to the end of the year, with the first waves of of forced sales to come in early 2021 as mortgage deferrals and government support are ended and Australia enters the worst of the fire season. However, it is possible that support measures will be extended again. Those, like me, living in South Australia will likely fair alright, with NSW, VIC, and QLD being hit the hardest.
How we can help.
Luckily both variable and fixed interest rates are at an all time low, off the back of RBA’s rate drops. So, if your interest rate starts with a 3 you very possibly could be paying too much. If you are interested in refinancing, contact us today!
