Homeowner financial comfort declines

The survey, which was conducted by DBM Consultants in December 2018 and covered 1,500 households, showed that the financial comfort between property owners and renters had been diverging over the past seven years, but for the first time in this report, the gap had closed.

Financial comfort – an overall measure of households’ perceptions of their financial comfort, expectations and confidence on scale of 1 to 10 across 11 measures – has reportedly increased for Australian property renters, while property owner comfort simultaneously declined.

Income gains, easing living costs, increased cash savings and reduced overspending were key drivers in households’ rising financial comfort, the report suggested.

However, the overall financial comfort of Australian mortgage-free property owners reportedly fell 3 per cent to 6.27 out of 10, reaching its “lowest point” recorded by the ME report since 2011.

The financial comfort of renters, on the other hand, was up 8 per cent at 4.78 out of 10, but was “still significantly lower than other tenures.”

Meanwhile, “overall comfort with debt” reportedly increased by 2 per cent to 6.33 during the six months to December 2018 – its highest level in four years and second highest since the survey started.”

The survey found that the overall Household Financial Comfort Index increased by 2 per cent to 5.56 out of 10 – the highest record in the past five surveys and “above the historical average” of 5.45 out of 10.

Regarding the key drivers of comfort for outright property owners, outright home owners reportedly suffered “... larger falls in net wealth, investments and their anticipated standard of living in retirement”.

The survey suggested that this reflects significant declines in house and share prices, which have had a “major negative wealth impact on their comfort”.

“In contrast, all key drivers for households paying off their home rose to a similar degree,” ME reported.  

Meanwhile, renters and owner-occupiers paying off mortgages recorded similar levels of comfort with debt, both falling far below the debt comfort of outright property owners.

Managing household debt

The ME report also found a decline in households being unable to meet debt servicing commitments in the last six months of 2018, with just 12 per cent unable to meet a personal loan or credit card repayment – two points down on the previous survey.

The proportion of households unable to pay their mortgage on time during the past year due to a shortage of money held firm at 7 per cent.

Regarding home loan repayments, the report concluded that a stable 44 per cent of households with home loans contributed over 30 per cent of their income towards housing at the end of 2018 – a “common indicator of financial stress.”

Looking 6-12 months ahead into household debt management, the survey concluded that “only 8 per cent of households do not expect to be able to meet minimum payments on debt”.

Roughly 42 per cent of households predicted that they “will not be able to meet their required minimum payments on their debt” and “can just manage to make minimum payments on their debt”.

“Alternatively, there remained almost 60 per cent of households that expect to be able to pay either a bit more (30 per cent) or a lot more (28 per cent) than minimum repayments in the next 6–12 months,” the survey concluded.

Meanwhile, 53 per cent of investors with a mortgage predicted the value of their properties to increase over the next 12 months, while 11 per cent anticipated a fall.

Commenting on the findings, ME’s consulting economist, Jeff Oughton, said: “The comfort gap between property owners and renters, as well as between very high income earners and other income brackets, has narrowed.

“We’ve seen a correction for wealthier, older property-owning Australians who’ve been riding the hot property and bull share markets for much of the past seven years, while middle and lower-income households have begun to benefit from an easing in living cost pressures and income gains.

“Together the changes have helped bridge the gap in financial inequality that had been widening.”

While Mr Oughton noted that cooling housing and share markets haven’t yet “dented” the financial outlook of most Australian households, noting that many residential property owners remain positive: only 13 per cent of home owners and 11 per cent of investors expect the value of their properties to fall in 2019.

Mr Oughton said increased belt-tightening may be a consequence of sustained property falls as well as economic and political uncertainty.

“We’re still seeing some geopolitical effects, with households concerned about the world economy up two points to 29 per cent and, combined with domestic property and share market corrections, many Australians are beginning to tighten their belts to build financial resiliency,” Mr Oughton said.

“If above average cash savings and reduced spending behaviour continues during 2019, it could significantly slow economic growth and in turn may lead to smaller job and income gains.”

[Related:  NSW government launches tool to help combat mortgage stress]