Over half of households in financial stress, says non-major

With subdued and stagnant incomes, more Australians are feeling strapped for cash and are being forced to dip into their savings to cover the rising cost of living expenses, ME’s latest Household Financial Comfort Report (HFCR) has revealed.

The report found that of households with debt, there was an increase in the number expecting 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” in the next six to 12 months — 43 per cent combined, compared to 38 per cent in December 2017.

For households with home loans, the proportion paying more than 30 per cent of their household income towards a mortgage was relatively unchanged at 45 per cent — much the same as previous reports.

“Somewhat encouragingly, the number of people arguably in extreme stress who contribute more than 60 per cent of their income towards their mortgage has halved from 8 per cent to just 4 per cent,” the report noted.

“This is perhaps a sign of recent banking regulations to encourage responsible lending that are having a positive impact.

“For renters, there has been a significant fall in rent stress, with those contributing more than 30 per cent of their income falling from 72 per cent to 67 per cent, including falls among households spending greater than 60 per cent of their income on rent as well as 30–40 per cent of incomes on rent. Cooling housing markets and, in turn, falling rents in some major cities are easing the high levels of rental stress.”

The ME report found that the proportion of households that “worried about their household’s level of debt over the last month” remained unchanged at 38 per cent — rising to 50 per cent among mortgage holders, compared to 45 per cent of renters and only 19 per cent who own their own home outright.

By household type, “couples with young children” reported the highest level of “worry with debt” (50 per cent), followed by “young singles or couples with no children” (41 per cent).

Meanwhile, less than a fifth (19 per cent) of “retirees” reported high levels of “worry with debt”.

“Households based in metropolitan Sydney (46 per cent) reported a significantly higher level of ‘worry about their household’s level of debt over the last month’, arguably a reflection of relatively high house prices in Sydney that have started to ease after strong gains over the previous few years,” the report said.

“That said, the biggest worry among all households is the cost of necessities, which supersedes their worries about their ability to pay off a mortgage or other personal debt.”