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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
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.
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.