1 in 5 cutting back to pay down mortgage: NAB

A new consumer survey from National Australia Bank (NAB) has found that around a fifth of consumers who have been changing their spending habits in response to rising consumer stress are using the extra money for mortgage repayments.

The NAB Economics Q4 Consumer Sentiment report, which surveyed around 2,000 Australians, has found that consumer stress rose for the fifth consecutive quarter in the three months to December 2023.

Although the stress associated with the cost of living had stabilised, this remained the biggest cause of stress for consumers. However, anxieties regarding job security were on a significant upswing, particularly in the December quarter, the survey found.

What are consumers most worried about?

Overall, eight in 10 consumers said they believed living costs increased further in Q4 2023, with perceptions of higher prices most evident for groceries, utilities, transport, eating out, and mortgages.

The survey found that consumer stress levels were higher among mortgagors than those who owned their home outright (60.1 pts versus 54.6 pts).

Home owners without a mortgage had significantly lower levels of job stress than mortgagors (38.2 pts versus 48.8 pts) and were also found to worry much less about their ability to fund their retirement (51.6 pts versus 62.2 pts) and cost of living (63.6 pts versus 70.9 pts).

How is money being reallocated?

NAB’s survey found that Australians continued to undertake “consumption smoothing”. This was defined as “making deliberate spending trade-offs to manage household balance sheets, support their lifestyle and cope with unexpected expenses”.

The biggest savings came from spending less on major household appliances ($430) and on holiday plans ($409), followed by private school fees & tutors ($221 up from $161 in the previous quarter).

For the first time in this survey, NAB asked consumers what they were doing with extra money from these cutbacks.

According to the data, consumers were mostly putting it towards day-to-day expenses, prioritising debt repayments, or increasing savings. Around 60 per cent used the savings for day-to-day living expenses and just over four in 10 (42 per cent) put the money into a savings or offset account.

Around one in five used this reallocated cash to pay down their mortgage (20 per cent) or other debt (19 per cent).

Behaviours changed depending on age and circumstance, however. Middle-aged respondents (those in the 30–49 age bracket) were more likely to have prioritised their debt – with 26 per cent saying they had done so. This compared to 22 per cent of those aged between 50 and 65, 20 per cent of younger adults (18–29 age group), and just 4 per cent of those aged over 65.

More than a fifth of young adults said they had used the money to pay ‘other debt’, the highest percentage of any other cohort.

A much higher number of those aged over 65 said they had focused on day-to-day living expenses (67 per cent), while more than half of the 18–29 group were using the extra money to put into savings or offset accounts (56 per cent).

Income also changed behaviours, NAB found.

Nearly three-quarters (73 per cent) of those in the lower income group used the money for day-to-day living expenses, compared to one in two (52 per cent) in the higher income group.

Meanwhile, four times as many higher-income earners used the money to pay down their mortgage (34 per cent versus 9 per cent) compared to lower-income earners.

Less than one in 10 (7 per cent) used money saved from “consumption smoothing” to splurge on something they wanted.

The December quarter survey painted a picture of an increasingly cautious consumer, with the overall net number planning to cut back on all spending increasing to -13 from -11 in the previous quarter and -6 at the same time last year.

[Related: Distressed listings remain low despite mortgage concerns]