Australia has the world’s highest rate of mortgage pain
Australians are forced to allocate a higher percentage of income to mortgage repayments than any other developed nation
3 min
Homeowners in Australia allocate a higher share of their income to mortgage repayments than any other developed nation, according to the International Monetary Fund (IMF). In its Global Financial Stability Report released this month, the IMF says Australian households allocated 15% of income to home loan repayments in December 2022, the highest level among all advanced economies.
Although official interest rates in Australia are slightly lower than other developed countries, we have the second highest level of household debt in the world – primarily due to high house prices – and 75% of our home loans are on variable rates. This makes Australia different to many other advanced countries where longer fixed-term home loan arrangements are the norm.
The Reserve Bank of Australia (RBA) says Australians are keeping up with home loan repayments but are cutting spending in other areas to cope with higher interest rates and inflation. In a report released this month, the RBA said some homeowners were taking on extra work, or drawing down on savings buffers, to cope with the higher costs of living. “Many households continue to face a squeeze on their budgets as high inflation and the increase in interest rates over the past 18 months have reduced available income after essential expenses and housing costs. Consistent with this, consumer sentiment remains near historically low levels, particularly for owner-occupier mortgagors,” the RBA said.
Home loan repayments for most borrowers have increased by between 30 percent to 50 percent since the RBA began hiking interest rates in May 2022. “Borrowers with high debt relative to their income – including some new mortgagors and first home buyers – have been particularly affected as their scheduled loan payments relative to income have increased by a greater amount than those of other borrowers,” the RBA said.
However, very few Australians have fallen behind on their loan repayments or sought temporary loan modifications from their lenders. “In the event that more borrowers became unable to service their loans, only a very small number would be in negative equity on their mortgage. As a result, losses to lenders are expected to remain low and manageable.”
The IMF noted that supply constraints have contributed to house prices remaining above pre-pandemic levels in many countries, thereby “complicating central bank efforts to bring inflation back to target”. This is certainly the case in Australia, with the latest inflation data released by the Australian Bureau of Statistics yesterday showing rents and new housing purchases, along with petrol prices, were the biggest contributors to the 1.2% rise in inflation over the September quarter.
CoreLogic Research Director Tim Lawless draws a direct correlation between the surprisingly strong rebound in home values across most markets in 2023 with the low number of homes for sale. The latest CoreLogic data shows that during the September quarter, home values grew most in Adelaide at 4.3%, Brisbane at 3.9% and Perth at 3.6%. Mr Lawless said: “The three capitals recording the highest capital gain each have advertised supply levels that are around 40% below their previous five-year average. Advertised supply levels across Hobart, where values are still trending lower, have been holding at above-average levels since June last year and were almost 40% above its five-year average.”
Most experts say the rate hiking cycle in Australia is coming to an end as inflation continues to trend down. Demand in the property market appears set to remain strong, with the usual seasonal increase in the number of homes for sale in Spring failing to put any meaningful brake on price growth. A high rate of migration over the next five years is likely to exacerbate demand, while new housing starts remain suppressed due to high construction costs and labour shortages.
Tips from RateCity to manage your mortgage
Ask your lender for a lower rate:
If you have a good credit score and always make timely repayments, your lender may not want to lose your business and might offer you an interest rate discount or perhaps waive some fees.
Refinance to reduce your interest:
If you’ve managed to build up some equity in your property, you may be in a position to refinance your home loan with another lender on a lower interest rate.
Make extra repayments to lower servicing costs:
By making extra home loan repayments on top of your obligations, you may be able to shrink your home loan principal and therefore reduce the interest charged on your mortgage.
Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Prepare yourself for the year of the peach
2 min
Pantone has released its 2024 Colour of the Year — and it’s warm and fuzzy.
Peach Fuzz has been named as the colour to sum up the year ahead, chosen to imbue a sense of “kindness and tenderness, communicating a message of caring and sharing, community and collaboration” said vice president of the Pantone Color Institute, Laurie Pressman.
“A warm and cosy shade highlighting our desire for togetherness with others or for enjoying a moment of stillness and the feeling of sanctuary this creates, PANTONE 13-1023 Peach Fuzz presents a fresh approach to a new softness,” she said.
The choice of a soft pastel will come as little surprise to those who follow the Pantone releases, which are often a reflection of world affairs and community mood. Typically, when economies are buoyant and international security is assured, colours tend to the bolder spectrum. Given the ongoing war in Ukraine, the Israeli-Gaza conflict and talk of recession in many countries, the choice of a softer, more reassuring colour is predictable.
“At a time of turmoil in many aspects of our lives, our need for nurturing, empathy and compassion grows ever stronger as does our imaginings of a more peaceful future,” she said. “We are reminded that a vital part of living a full life is having the good health, stamina, and strength to enjoy it.”
The colour also reflects a desire to turn inward and exercise self care in an increasingly frenetic world.
“As we navigate the present and build toward a new world, we are reevaluating what is important,” she said. “Reframing how we want to live, we are expressing ourselves with greater intentionality and consideration.
“Recalibrating our priorities to align with our internal values, we are focusing on health and wellbeing, both mental and physical, and cherishing what’s special — the warmth and comfort of spending time with friends and family, or simply taking a moment of time to ourselves.”
Each year since 2000, Pantone has released a colour of the year as a trendsetting tool for marketers and branding agents. It is widely taken up in the fashion and interior design industries, influencing collections across the spectrum.
Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
