Mortgages reliant on dual-incomes present 'potential risk'

The State of the Nation - Spotlight on Finance Risk report from Roy Morgan Research has revealed that more than two-thirds of owner-occupied mortgages are now held by households with two incomes, “presenting some problems if one decides to either drop out of the workforce or becomes unemployed”.

The researchers highlighted that although the 3.2 million mortgage holders who are in dual-income households have lower-than-average mortgage risk levels (only 9.3 per cent are ‘at risk’ of failing to meet the repayment guidelines provided by their banks, compared to the overall market average risk of 17.4 per cent), the levels would rise significantly if even the non-main earner drops out of the workforce.

According to Roy Morgan Research, if the non-main earner dropped out of the workforce, some 34.8 per cent would be at risk of mortgage stress.

Further, if one income in these households is lost due to having a family, unemployment, retirement, or any other reason, the ‘extremely at risk’ level would rise from 6.5 per cent, to 27. 1 per cent.

Both of these are approximately double the level of the average mortgage holder.

Norman Morris, industry communications director for Roy Morgan Research, commented, “Although mortgage stress levels have tended to decline over the last five years in line with the drop in interest rates, they remain of some concern with 17.4 per cent of mortgage holders ‘at risk’, and 13.1 ‘extremely at risk’.

“Mortgage stress levels are likely to remain high even with further interest rate reductions, as this appears to encourage higher house prices and borrowings.

“The heavy reliance on two-income households for home loan repayments reduces mortgage risk, providing both parties remain employed.”

Mr Morris concluded that the biggest impact on mortgage stress is likely to be unemployment or a move to increase levels of underemployment.

“[T]he loss of an income in a two-income household has more impact than a doubling of interest rates,” he warned.

The news from Roy Morgan Research is timely, as new data from comparison website RateCity shows that, of Australia’s capital cities, only two have a median house price that is affordable on a single income.

Hobart and Adelaide remain the last affordable cities for the nation’s singles, while the average household income required to buy a median-priced house in Sydney is $137,556 (if mortgage holders spent no more than 30 per cent of their income on loan repayments).

This figure was followed by Melbourne ($96,706) and Brisbane ($80,866) as the average household incomes required to meet mortgage repayments while living comfortably.

“Our analysis reveals a reality that many young Australians are now living; the impossibility of affording a median-priced house on an average salary in most cities,” said Peter Arnold, data insights director at RateCity.

[Related: Housing price growth will “moderate”]