First-time mortgage stress on rise

The majority of first-home owners are struggling with mortgage stress, with those in South Australia the hardest hit, according to Mortgage Choice’s latest First Homeowner survey.

The finding is especially worrying given speculation is mounting that the Reserve Bank of Australia’s two-year cycle of interest rate cuts is coming to end on the back of an expected doubling in the inflation rate during the September quarter.

The next move in official rates is therefore likely to be upwards and the RBA likes to emphasise changes in direction with a 50 basis points move.

The annual survey by Mortgage Choice – which writes a mortgage every 15 minutes – finds that 53 per cent of first-home owners (those who bought within the past two years) are contributing more than 30 per cent of their after-tax income to their mortgage.

New buyers in South Australia are struggling the most, with 60 per cent considered to be in mortgage stress. This compares with 54 per cent in Western Australia, 52 per cent in both Victoria and Queensland, and 50 per cent in NSW.

Mortgage stress is defined as being when a mortgage holder is contributing more than 30 per cent of their after-tax income to their mortgage.

“For those who are experiencing mortgage stress – or feel as though they may be getting into financial difficulty – help is available,” Mortgage Choice spokeswoman Jessica Darnbrough says.

“A mortgage broker can help you assess your financial situation and find a suitable solution for your needs, both now and into the future.”

There is some good news in the survey’s numbers though.

Almost two-thirds of the surveyed respondents (62 per cent) said they made additional mortgage repayments whenever possible, with 37 per cent putting as much as they could afford towards their mortgage each month.

In addition, over half (53 per cent) of the respondents said they had not changed their repayment strategy, despite the fact that many lenders have trimmed their interest rates in line with the Reserve Bank of Australia’s cuts in official interest rates.

“While it is tempting for first-home owners to reduce their mortgage repayments in line with any recent interest rate cuts delivered by their lender, it is comforting to see that mortgage holders have such a responsible attitude when it comes to their home loan,” says Darnbrough.

“Paying extra on your mortgage now can provide you with a certain level of comfort, knowing that you will be able to make your mortgage repayments if and when interest rates rise in the future.”