Analysis reveals the top five postcodes in the country’s three largest cities that are experiencing the highest rates of mortgage stress.
Mortgage stress refers to households spending more than 30 per cent of their pre-tax income on servicing home loans, which the Australian Bureau of Statistics considers to be a financially precarious position.
Sally Tindall, director of research at financial comparison website RateCity.com.au, said mortgage stress occurred for a number of reasons.
“During the last boom a lot of people overstretched themselves to get into a rising housing market, particularly in Sydney and Melbourne, and many did so with small deposits,” Ms Tindall said.
“The falling property market isn’t helping. If people overstretched themselves or used a small deposit, your house being worth less could trap them in what we call ‘mortgage prison’. They can’t refinance their loans.
“The rising cost of living is a real problem for people too. Higher electricity bills, petrol costs, you name it … has families feeling the pinch.”
Four of the five top postcodes in mortgage stress in Sydney are in the city’s outer north and southwestern suburbs, with Edmondson Park topping the list with 20.3 per cent of households spending in excess of 30 per cent of their income on loan repayments.
Kurnell in the Sutherland Shire, south of the city, rounds out the list, with 16.1 per cent of homeowners in stress.
In Greater Melbourne, three of the top five worst postcodes are dotted around the city’s outer northern region, while two are in the southeast.
Wollert topped the list with 20.3 per cent of households experiencing mortgage stress.
In Brisbane, the five worst postcodes had lower proportions than their southern capital cousins, reflecting the city’s lower property prices and an extended period of flat value growth.
Ms Tindall said the risk of mortgage prison, where households are stuck in their existing arrangements despite lower rate alternatives being on offer, will become more common.
“The longer the market continues to fall, the more people it will trap,” she said.
“Even if you’re not in negative equity, being close to it can make it hard to refinance a loan. And in those cases, it’s not a great idea if you have to pay thousands in lenders’ mortgage insurance.”
However, those experiencing mortgage stress but have sufficient equity to refinance could find a better deal elsewhere.
“It’s a great way for some people to inject some relief back into their monthly budget. Now is an excellent time because banks are throwing rock-bottom rates at borrowers — people who live in their own home and have a decent equity,” Ms Tindall said.
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And should the Reserve Bank of Australia cut interest rates next week for the first time in three years, these financially stressed households would be among the most relieved.
A reduction of 0.25 per cent would save households with a $400,000 mortgage up to $58 per month or $700 annually, Ms Tindall said.
Those repaying a $500,000 loan would save $73 a month or $875 each year on a lower rate.
“It might look like a small amount to some, but for those really struggling it would make a big difference,” she said.
“It will provide a bit of relief for families that are feeling the pinch.
“It could be the difference between paying for a tank of fuel to get your kids to school or being able to send them to music lessons.”
Of course, that hip-pocket relief depends entirely on whether lenders pass on the RBA’s anticipated cut in full.
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The good news could continue for those in mortgage stress, with a number of experts predicting further rate cuts throughout 2019 and into 2020.
Global bank JP Morgan this week released its forecast for official interest rate movements, predicting a drop of 1 per cent over four separate cuts in the coming year.
“Our sense is that the combination of global headwinds, and the RBA having slipped behind the curve, could therefore be decisive in bringing four cuts, rather than three,” Sally Auld, the organisation’s chief economist, said.
“The structural headwinds facing the domestic economy — a deleveraging of household balance sheets, persistently low incomes growth, a recalibration of lending standards and a rebalancing of economic growth away from housing-related activity — all demand a long period of low rates.”
JP Morgan has offered the boldest outlook for the Reserve Bank’s likely actions from any financial sector commentator.
Although, Westpac’s chief economist Bill Evans is not far behind and has tipped a total fall in the official cash rate of 0.75 per cent by the year’s end.
And virtually every economist believes the RBA board will lower the rate to a record low of 1.25 per cent when it meets next Tuesday.
Financial comparison website finder.com.au conducts a monthly survey of 35 different economists — the largest of its kind — to gauge their thoughts on a likely rate cut.
The outlook for next Tuesday shows a dramatic shift in temperament compared with the past several months, with 32 of the cohort expecting a 25 basis point reduction next week.
Graham Cooke, insights manager at finder.com.au, said should that happen, borrowers whose banks didn’t pass on the cut should shop around for a better deal.
“Be aware that banks may not necessarily pass on the whole cut — we saw that only three of the four big banks passed on the full cut last time around,” Mr Cooke said.
“This could well reinvigorate the market and reverse the slump we’ve seen this year.”
A big part of the RBA’s expected move is a worrisome outlook for Australia’s economy, which remains patchy following a turbulent second half of 2018 that continued into the new year.
In its forecast, Deloitte said there was good news and bad news for the national economy, but overall, growth would be “below average”.
“On the one hand, continued caution on the part of consumers from falling house prices and a retreat in dwelling investment will weigh on growth,” it advised.
“On the other hand, increased government spending on infrastructure and services, resource exports, and the effect of increased tax cuts announced in this year’s federal budget will add to growth.”
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