Dual Income Home Loans Hit By Mortgage Stress

1
Dual Income Home Loans Hit By Mortgage
Stress Many owner occupied homes, obtained
through home loans, are currently held by dual
income families. However, over a third of these
are under mortgage stress. This means that, if
one of the income earners would stop working,
they would struggle to repay their mortgage. This
was observed in a new Australian survey. Loss
of Income in One Makes It Difficult to Pay
Mortgage Owner occupied dual income home loans
are very popular, with more than two thirds being
of such construction. This means that, if there
were to be a change in employment conditions or
in economic growth, many people would suddenly
be under threat. While the economy is recovering
at present, it usually moves in waves, which
means a short, smaller recession is likely to be
felt soon. The mortgage belt in Australia has
long been a tale of two cities, mainly Sydney and
Melbourne. Over the past three years, property
prices in these areas have risen tremendously.
This makes it more and more difficult for first
time buyers to get on the property ladder. It
also makes it increasingly difficult for people
with a single income to pay for the
mortgage. Roy Morgan Survey on Mortgage
Stress Roy Morgan has been conducting an ongoing
survey, known as the "Spotlight on Finance Risk".
So far, they have spoken to some 500,000 people
over the past ten years. The survey has shown
that 67.2 of all owner occupied home loans are
now for households with a dual income. The
survey has also shown that there are currently
some 3.2 million mortgage holders at present for
owner occupied buildings. Of these, 9.3 are
listed as being "at risk" of experiencing
mortgage stress. This means that their ability
to make the necessary repayments is under threat,
particularly under interest rate conditions that
are getting tighter. If, in these cases, the
non-main income earner would be removed from the
equation, then this proportion rapidly shoots up
to as much as 34.8. Definition of Mortgage
Stress By definition, people are classed as
being "under mortgage stress" if more than 30 of
their disposable household income goes to the
mortgage repayments. According to Roy Morgan, an
increasing number of households rely on having
more than one income. What this means is that, if
one income were to be lost, the financial blow
would be greater than if the interest rates were
to double. Dual income mortgages are popular
because the risk of not being able to make
mortgage repayments is much lower. However, this
is only true if both parties continue to earn an
income. While the unemployment rate is
reasonable right now and does not seem to be
rising, there is a rise in the current
under-employment level, and this also has a
significant impact. Rising House Prices
Increased Mortgage Debt Because house prices
have been rising, overall mortgage debt has also
increased significantly. As a result, most
people are now left with at least some debt once
they retire. This, in turn, will impact how much
disposable income someone would have upon
retiring.
2
The Reserve Bank of Australia is monitoring the
situation closely. They are aware of the fact
that, over the past few years, average levels of
household debt are on the rise again. However,
the Reserve Bank mainly looks at the number of
mortgage defaults. These have been historically
low, which means they are not worried about the
immediate future. Property Auctions Increasing
in Popularity For many financial experts,
however, this is an oversight. For instance,
CoreLogic, an independent property research
group, has recently released new figures on
average house prices. They have reported that,
year on year, house prices have risen by as much
as 8, which is very significant. As a result,
the median house price in Australia now stands at
567,000, although it is somewhat higher in
Melbourne. According to this research, some 77.9
of all property auctions in the capitals of the
mainland resulted in a sale. This figure was just
69.9 one year before. It is likely that this is
in part due to homes continuing to be an
interesting investment, with the majority of
these properties being sold to
landlords. Meanwhile, buying at auction is also
an attractive proposition for first time buyers,
who would otherwise struggle to enter the
housing market. First time buyers are inevitably
dual income families, as it is nearly impossible
nowadays to raise sufficient savings for a
deposit on a property, particularly with the low
interest rates on savings accounts. This presents
a potential but significant risk in the future,
particularly if there will be a negative change
in the employment market.