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Home owners are paying up to 70 per cent of their income on mortgage repayments putting their financial security at risk.
New research commissioned by Aussie has found almost one-quarter of home owners (23 per cent) are using more than 50 per cent of their income to pay their mortgage, while a staggering 11 per cent are using more than 70 per cent of their total income to pay their monthly home loan.
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Aussie’s ‘12th Rate Rise Effect Report’ surveyed 1,000 Australian home owners and found nearly a quarter of home owners (23 per cent) are utilising more than half of their income to pay their mortgage, with an alarming 11 per cent allocating over 70 per cent of their total income towards their monthly home loan.
It comes as rising interest rates leave many households facing substantial financial hardships, with 29 per cent of respondents admitting to struggling with the higher repayments, and 13 per cent expressed concerns about potential loan defaults.
Moreover, the study revealed that one in four borrowers surveyed believes that their long-term financial security is at stake due to escalating rates.
Co-founder of Lendi and Aussie’s chief operating officer Sebastian Watkins said families are being forced to make difficult lifestyle adjustments to meet their heightened mortgage obligations.
“It is alarming the reality of how some households are so stretched,” Mr Watkins said.
“We are hearing this anecdotally from brokers as well as through our research into the market.
“We’re seeing households contribute less to super and savings which means right now, mortgage holders are sacrificing their long-term security to pay their mortgage.”
The report revealed approximately 37 per cent of respondents reported having to work longer hours or overtime to manage their mortgage, while 22 per cent took on second jobs.
Additionally, more than 10 per cent had sold longer-term investments, 55 per cent had curtailed holiday plans, and 60 per cent had reduced their grocery expenses.
Half of the participants acknowledged stopping or reducing their contributions to savings, while 19 per cent halted or diminished their superannuation (retirement) contributions.
The report revealed 37 per cent of home owners are having to work longer hours or overtime because of the rate increases, while 22 per cent have taken on a second job.
Additionally, more than 10 per cent had sold longer-term investments, 55 per cent had curtailed holiday plans, and 60 per cent had reduced their grocery expenses.
The survey also noted, half of the participants acknowledged stopping or reducing their contributions to savings, while 19 per cent halted or diminished their superannuation (retirement) contributions.
Given the financial pressures on Aussie families, Mr Watkins stressed the importance of proactive engagement from brokers, urging them to reach out to customers early on to provide assistance before financial distress intensifies.
“A good broker can also look at options such as longer loan terms or interest only and help manage their customers through this — even as a temporary solution — while the market is at its peak,” Mr Watkins said.
While the Reserve Bank of Australia (RBA) maintained the cash rate at 4.1 per cent, in July, providing some respite for mortgage holders, the central bank has warned of the potential for more rate hikes.
A recent report by Roy Morgan warned that if the RBA raises interest rates by an additional 25 bps to reach 4.35 per cent, the number of mortgage holders at risk of mortgage stress will surpass the levels reached during the global financial crisis in early 2008 (1,455,000), to 1,485,000.
Mr Watkins warned two more rate rises would result in banks’ rates being above 6 per cent, which would see more than 40 per cent of fixed-rate holders, who took out mortgages at the bottom of the rate cycle, hit a negative net monthly surplus — pushing them into “mortgage prison”.
“A home owner who is becoming a mortgage prisoner is going to have difficulty refinancing on their own and they really need a good broker in their corner,” he said.
“Thankfully, there are newer options on the market for those with a good repayment history and equity in their home, so acting sooner rather than later is the best option.”
The report highlighted the existence of a barrier to refinancing caused by “lender loyalty”, with more than four out of 10 home owners believing that refinancing would not provide any relief, while 27 per cent said they trust that their lender is giving them a good deal.
In addition, 74 per cent had not yet attempted to refinance, leaving seven in 10 home owners open to revisiting their options.
Mr Watkins expressed concern over this perception, emphasising that borrowers in the current high-rate environment should actively pursue all available options to alleviate mortgage stress.
“We’ve already identified through our platform over 5,000 customers who qualify for better options on the market … [And] our brokers are saving customers 45 bps, on average when refinancing,,” Mr Watkins said.
“Our platform automically alerts our brokers, making it easier for them to proactively reach out to their customers letting them know there are currently better options — before customers reach financial distress.”
[Related: Mortgage holders on the brink]
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