An increasing number of Australian homeowners are struggling to meet their mortgage repayments. But are you in “mortgage stress”.
Tens of thousands are about to enter that unpleasant and dangerous state defined as when you find yourself spending 30% or more of your pre-tax income on home loan repayments.
According to some, another is when your household income becomes insufficient to cover its ongoing costs. But by that time, you really are in trouble.
The Reserve Bank today lifted the official interest rate by 0.5 percentage points, taking the cash rate to 1.85 per cent. It’s the third rise in as many months.
The recent series of rate rises adds $472 to monthly repayments for a typical $500,000 mortgage, $708 for $750,000, and $944 a month for a household with a $1 million loan.
Some estimates yesterday said up to $250 billion of mortgages taken out in the last few years could be at risk of “delinquency” – which basically means they will default or accumulate arrears.
Jon Mott of Barrenjoey argues in The financial Review that the speed at which interest rates have risen since May and size of growth in mortgage commitments in the two years has seen the second-biggest jump since lending data begun during the 1970s.
In other words, we now owe more than ever. And it’s going to cost us more than ever, too.
The RBA argues 70 per cent of us are ahead on mortgage payments.
But Mott uses Commonwealth Bank’s claim that 10 per cent have taken out their maximum possible mortgage over the past three years – and that means they have no excess cash.
He reckons up to $250 billion of mortgages could face severe stress if the cash rate hits 3 per cent.
“For the first time in several decades, we are likely to see a wave of fully employed borrowers falling into delinquency as they simply can’t make ends meet.”
Here’s advisory company Yellow Brick Road’s stress test. Any of these get a yes from you?
Mortgage stress test
- Have you stopped working suddenly and have no regular income to pay your bills?
- Are you going through a divorce, relationship breakdown or death of a partner and you relied on your partner’s income to pay the mortgage and bills?
- Are you routinely behind on credit card payments?
- Do you pay only the minimum due on your credit cards?
- Do you use your credit card to pay off debt?
- Are you behind paying off your utility bills?
- Have you stopped going out or taking holidays because you need this money to pay bills?
- Are you using your savings for household expenses?
- Do you pay more than 30% of your pre-tax salary to your home loan?
- Have you fallen behind in more than one scheduled home loan repayment?
- Are your money worries affecting your health and personal relationships?
- Is there any buffer in your finances to cope with an increase in loan repayments should interest rates rise?