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Home owners warned!

Interest rates set to rise?

The Chief Economist for Deloitte Australia, Chris Richardson, recently reported that within the next 4 years Australians are looking at a 2% interest rate increase, with the earliest prediction of a small rate increase by the end of 2018.

Chris Richardson predicts that this will affect most people who are barely scraping by, such as young families who get help from their parents to secure a loan and to afford their mortgage repayments.

Mebank’s 13th edition of ‘Household Financial Comfort Report’ presents findings and trend changes conducted in December 2017 and provides in-depth and critical insights into Australian households based on 1500 different Australian households bi-annually.

The high levels of mortgage payment induced stress are set to increase, with over half the households that are renting or paying off a mortgage (56%) reporting that they are contributing over 30% of their disposable household income towards these costs. Furthermore, 38% of households reported they were worried about their level of debt in the past month, with some households unable to pay such things as their utility bills on time (16%), some seeking financial assistance from family members or friends (19%), or requiring to pawn or sell something to buy necessities (13%).

Of all households, 7% reported that they could not always pay their mortgage on time during the past year and 7% of those who were renting also reported they could not pay their rent on time. If this trend continues and rises further with a possible 2% mortgage rate increase mortgage defaults may escalate, particularly among vulnerable low-income households already dealing with the rising cost of necessities.

The number of loans has increased and recorded a strong growth in the recent months. This is mainly due to the changes in the first home buyers’ grants laws, which abolishes stamp duty on homes up to $650,000 and gives stamp duty relief on homes up to $800,000.

This has led to a strong confidence in first home buyers and in particular, those under the age of 35 without children as they are looking to take loans out to purchase their first home under the belief they are more financially comfortable, with their ‘overall financial comfort’ rising by 8%. This trend might fall if an interest rate increase of 2% is introduced in the next 4 years and those first home buyers purchasing now might not be able to afford their repayments in the years to come.

When surveyed, households with a mortgage reported that 47% excepted to be worse off financially if the Reserve Bank of Australia raises the official cash rate by even 1% from its record low 1.5%. With this in mind, the prediction by Chief Economist, Chris Richardson, is that the future for Australian seems uncertain. With possible rises in mortgage rates and the cost of living increasing many Australians with mortgages may be unable to afford their mortgages and may have to sell their homes.

 

References:
  1. The Mebank
    Household Financial Comfort Report. Sourced from https://www.mebank.com.au/getmedia/ce8faccb-4301-4cf7-afd7-871f9c45305e/13th-ME-Household-Financial-Comfort-Report_Feb-2018-FINAL.pdf
  2. Ten News. Sourced from https://www.facebook.com/tennews/videos/1822155217854777/
  3. The Australian Bureau of Statistics. Sourced from http://www.abs.gov.au/ausstats/abs@.nsf/0/05DBCE56402EC566CA25723D000F2999?Opendocument
  4. The New South Wales Government First Home Buyers Projects and Initiatives. Sourced from https://www.nsw.gov.au/improving-nsw/projects-and-initiatives/first-home-buyers/