Mortgage stress could hit one million households

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The number of Aussie households facing mortgage stress could top one million this year, according to Lucky Money, a mortgage broking firm with a focus on specialist lending.

Louis Velasquez, CEO of Lucky Money, said the rising cost of living, lacklustre income growth, persistent unemployment, and strong likelihood that interest rates will rise relatively soon means the number of households struggling to stay afloat will increase.

“Recent figures released by Digital Finance Analytics showed Australian households facing mortgage stress has risen by nearly 20 per cent in the past six months to 900,000,” he said. “This worrying trend means net incomes are not covering ongoing costs in nearly a third of all Australian households. That’s up from about 25 per cent in mid-2017.” 

Velasquez added that people unable to meet mortgage repayments from current incomes are managing debt by putting more on credit cards.

Roughly 52,000 households risk a 30-day default over the next 12 months. 

“Some of the more distressed households are resorting to selling their homes, not knowing there are options available to consolidate debts and refinance,” Velasquez said.

“The major reason behind this issue is people are so focused on the ability to pay back their home loan that they [forget] about paying off their unsecured debts like credit cards and personal loans.

“Most people are uneducated when it comes to money so they prioritise their repayments in the wrong areas and then panic, which sees them plunge into deeper trouble and leads to defaults.”

The solution? According to Velasquez, “it’s quite simple: don’t take on unsecured bad debt.” 

Household debt in Australia is among the highest in the world, and households collectively owe more than $30bn on credit cards alone, according to the Australian Securities and Investments Commission (ASIC). 

Other reports indicate that high-net-worth individuals are also feeling the pinch, with a growing number willing to authorise risky moves on their property portfolios to reduce mortgage stress.

Liam Shorte, director at Verante Financial Planning, said he’s seen evidence of investors asking accountants to increase their reportable income to boost their borrowing capacity, often with the objective of refinancing. Historically, his clients have sought advice on how to minimise reportable income for tax purposes. 

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