High property prices and our appetite for debt are taking their toll
A
one-bedroom unit that was once
a space in a roof cavity in Sydney’s
prestigious suburb of Elizabeth Bay
sold for $1 million last month. Yes, it has
some impressive views but it came with
just 50 square metres of living space and
a shared balcony, and there was no garage.
That’s $20,000asquaremetre–talkabout
runaway house prices! It’s no wonder the
Reserve Bank is concerned for our finan-
cial welfare. Our insane appetite for debt
and a ridiculously overpriced property
market is putting a lot of Aussies in a very
delicate situation.
Digital Finance Analytics research
shows 669,000 families (22% of borrowing
households) are suffering mortgage stress.
Of these, 20.8% are in mild stress, mean-
ing they are making their repayments by
cutting back on other expenditure, putting
more on credit cards and generally hunker-
ing down. However, the remaining 1% are
in severe stress, meaning they are behind
with their repayments, are trying to refi-
nance or sell their property or are seeking
hardship assistance. The RBA also revealed
last month that despite interest rates sitting
at record lows, a third of households have
no mortgage buffer or are less than a month
ahead on their repayments.
A home loan borrower is typically con-
sidered to be in mortgage stress when they
are putting 30% or more of their pre-tax
income towards their monthly repayments.
When banks approve a loan they stress-test
Beat the mortgage stress
IS IT TIME TO FIX
YOUR RATE?R
ecent increases in variable interest
rates have reignited the fixed-rate
debate. So what are the potential benefits
of fixing? Just as with any home loan prod-
uct, there are various features to consider.
Fixed-rate loans offer certainty in future
repayments for up to 10 years. Generally
the additional amounts you are allowed to
repay will be limited but most lenders will
split your loan so that you can enjoy the
benefits of both fixed and variable rates.
Some lenders’ fixed rates are lower if taken
as part of a home loan package (potentially
including an annual fee) but some loans
come with no monthly fees and allow addi-
tional repayments and repayment holidays.
Some lenders also charge a “rate lock
fee” to guarantee that the advertised rate
will not increase after you apply and before
you settle.
Talk to your lender and check compari-
son sites such as Canstar to see if a fixed-
rate offer would suit you.
ACN 087 651 992/AUSTRALIAN
CREDIT LICENCE 238273BANKING Effie Zahos
the repayments by assuming rates increase
to around 7.25%. However, as Otto Dargan,
managing director of Home Loan Experts
points out, people often take on other debts
such as a car loan or credit card after they
buy a home and then this gets them into
financial trouble.
If you find yourself in mortgage stress
there are several things you can do. Most
importantly, keep the lines of communica-
tion open with your lender. It is very hard
to negotiate a repayment arrangement to
save your home or even to get time to sell
after the lender has obtained judgement.
The solution may be as simple as extend-
ing the term of your contract and reducing
repayments. Just be aware, though, that if
your lender does not believe this will help
your situation then they do not have to
agree to the arrangement.
Other ways to get your mortgage under
control include:- Ensure you’re on the best deal. Accord-
ing to Canstar’s database, the cheapest
standard variable rate is sitting at 3.39%.
When comparing this against the average
standard variable rate of the big four banks
(5.27%) that’s a difference of $528 a month
in repayments on a $500,000 mortgage. - Move out or sell up. By renting out your
home and living somewhere cheaper you
may be able to manage your repayments.
Selling is a hard decision but it’s better to
do it yourself rather than have the lender
take over, as you’re more likely to get a bet-
ter price and avoid legal costs.- Apply to your lender for a
hardship variation. This usual-
ly comes in the form of frozen
repayments, frozen interest rates
and or partial repayments. It is
important to note that interest
is still added your mortgage - Access your super. You may
be able to dip into your super
on compassionate grounds. The
most you can get from one fund
in 12 months is three months of
- Apply to your lender for a
repayments and 12 months of interest on
the balance of the loan. Release is given
only if your lender is threatening to sell
your home and you can’t pay the arrears
any other way.- Obtain a mortgage relief loan. Govern-
ments provide assistance to eligible low-in-
come families so they can buy and maintain
their homes. In Queensland, for example,
you can borrow up to $20,000 interest free.
Not all states and territories offer this and
eligibility requirements differ widely.
Finance expert and author of The Great
$20 Adventure, Money’s editor Effie Zahos
appears regularly on TV and radio. She
started her career in banking.