With the Reserve Bank’s recent subsequent increases to Australia’s cash rate, you may have been hearing more about (or even feeling) mortgage stress.
But what is mortgage stress? Have you been feeling it without knowing? And how do we take the pressure off?
Mortgage stress
What is mortgage stress?
There are multiple acceptable ways to define mortgage stress, but in Australia, the commonly held belief is that mortgage stress is defined by a contributing 30% or more of a household’s pre-tax budget on home loan repayments.
The term can be misleading, as it implies an emotional response, but this is not always necessarily the case. In fact, many people may be classed us being under mortgage stress, or closely approaching it without knowing. Unless you are closely scrutinising your budget, you may not even be aware that you are classed as being under mortgage stress.
In many cases, mortgage stress is gradual, due to rising interest rates, inflation and other cost of living pressures. In Australia, we have seen a period of reliably low fixed-interest rate home loans, which were taken up in record numbers. As many of these fixed rate periods end, millions of us are seeing our home loans revert back onto higher variable rates, and as a result, our regular repayment amount will have gone up as well.
Having to pay more to keep a roof over your head each month could see you fall into the category of being under mortgage stress.
What are you options when dealing with mortgage stress?
Examine your budget
Setting up a budget
Not knowing where every dollar goes all the time is alright, but when it comes to something as big as your mortgage, it can be a great idea to get an accurate picture of your finances right now.
You might find that your household earning power has changed since the last time you budgeted, or you might be able to easily identify some expenses that are easily trimmed.
Figuring out just how much you have to play with each month, and how big a proportion of your pre-tax income you are currently spending in home loan repayments will show you whether you’re suffering from mortgage stress.
Mortgage health check, or refinance
Whether you’ve just come off a long-term fixed rate, or you’ve been on a variable rate for some time, the current climate may be just right for you to give your current deal a once-over.
Yes, interest rates on the whole have gone up, but the market is still competitive. If your household is currently suffering from mortgage stress, you may find that your current lender is sympathetic and is able to offer you assistance in the form of a hardship relief arrangement.
If not, or if you just want to test the waters and see what can be done to ease your mortgage stress, it might be a good time to shop around for the best deal for your circumstances.
Cut down expenses and debts
Reducing your living costs
One simple way to free up more room in your budget is to eliminate expenses and debts that are not really necessary in this financial climate.
Think things like multiple streaming services, regular expensive meals out instead of cooking at home, and any direct debit payments that are coming out of your account that you may have forgotten about.
It can also be a great time to more closely examine all your other regular large bills to see if you’re getting the best possible deal – your energy, phone and data, gas, transportation.
Buy within your means
A tip for potential first home buyers, or anyone who may be going through the process of selling and buying their next home in this turbulent real estate market – buy within your means.
Money is not so cheap as it was five years ago, and if you’re looking to get into your next home in comfort, it might pay to budget for worst-case scenario when calculating your ability to service your home loan. Yes, interest rates are higher right now than they have been in a while, and yes, speaking cyclically, they may at some stage drop again. However, it’s better to overcompensate for the bad times so you can enjoy the good when they roll around.
Economic Outlook in 2023
2022 was a bit of a harrowing year for home-owners, as the Reserve Bank unshackled the cash rate and added on an average of $800 per year in repayments for Australian borrowers.
While economists at all four of Australia’s major banks are predicting further cash rate rises in 2023, there’s also optimism that by the time 2024 rolls around, we may see the needle moving in the other direction.
- CBA Cash Rate Prediction*: 3.35% by February 2023, then dropping to 2.85% by November 2023
- Westpac Cash Rate Prediction*: 3.85% by May 2023, then dropping to 2.85% by November 2024
- NAB Cash Rate Prediction*: 3.60% by March 2023, remaining steady into 2024
- ANZ Cash Rate Prediction*: 3.85% by May 2023, then dropping to 3.60% by November 2024
Mortgage stress and mental health
As you may have guessed from the name, finding your household suffering from mortgage stress isn’t a particularly pleasant feeling. There are many financial factors that may influence the relationship health and general wellbeing of a household, and the mental health of those responsible for it. Mortgage stress is different in that it pertains to one of our basic needs – having doubt cast over your ability to meet your home loan repayments, and potentially losing your home can be a truly frightening experience.
As per a study completed by The university of Newcastle, commissioned by Greater Bank and completed in 2021, we now know that financial wellbeing improves a person’s general wellbeing, and overall life satisfaction. Conversely, the same can be said that an absence of a sense of financial wellbeing, brought about by mortgage stress, can do the opposite.
Greater Bank
To explore more of our report, click here.
If you are finding it stressful to cope with your mortgage repayments, be attuned to changes in your mental health, and reach out for assistance if and when you need it, both from your lender, and from free mental health services like Lifeline (13 11 14).
Have Mortgage Stress? We’re Here to Help
At Greater Bank, we have maintained a reputation as responsible lenders since 1945. That is to say we want people to own their homes – not be chained to a loan. So, by and large, we only provide loans to those we think can confidently service them.
With that being said – life happens. Circumstances change. We get that, and we understand that not everyone is able to be exceptionally well prepared to weather financially tough times.
That’s why we’re happy to speak to you about your loan – whether you’re one of our 270,000+ customers, or you’re thinking of refinancing to get a deal better suited to you. Our lenders can meet at a time and place that suits you to discuss refinancing or hardship assistance options.
Get in touch with your local lender today.
This article is intended to provide general information of an educational nature only. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information, you should consider its appropriateness having regard to these matters and the product terms and conditions. Terms, conditions, fees, charges and credit criteria apply. Information in this article is current as at the date of publication.