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‘It’s disturbing’: One in seven homeowners with a mortgage have no buffer saved

05 December 2017
One in seven homeowners would be unable to meet mortgage repayments if they were to lose their job, according a survey of homeowners.

The survey by Canstar revealed that 43 per cent of borrowers have fewer than three months’ worth of repayments saved to cope with unexpected changes to their financial situation.

Alarmingly, 15 per cent of borrowers had no financial buffer at all, meaning they would be unable to cover mortgage repayments if they lost their job, or faced sudden expenses such as emergency medical bills.

The Canstar Consumer Pulse Report, which asked 2026 Australian consumers about their views on financial security and housing affordability, also found that 39 per cent of the homeowners who had money saved, either in an offset account or through extra repayments on their loan, had dipped into their financial buffer in the last 12 months.

“It’s a bit disturbing,” said Canstar group executive of financial services Steve Mickenbecker.
The frothy market conditions in capital cities and ballooning levels of household debt, especially amongst first-home buyers, may have contributed to the current situation, explained Mr Mickenbecker.

“We’ve not only seen interest-only loans provided to first home buyers, but we’ve also seen an escalation of property prices and borrowing levels,” he said.

Mr Mickenbecker expressed concern that some first-home buyers were being offered interest-only loans when they couldn’t afford them, and that a degree of recent loan applications were inaccurate.

“Some of the loan applications have had unrealistic budgets in there, so they haven’t fully captured the real spending situation of people.” said Mr Mickenbecker.

“I think most loans are probably meeting the criteria, but there will be some that have been written that shouldn’t have been.”

According to a recent survey by UBS, about one-third of Australians were not completely truthful on their home loan application over the past 12 months.

The situation appears concerning given that many experts agree that the next interest rate move is likely to be upwards.

“I think the real worry is if interest rate increases come before we start getting some wages growth,” he said.

AMP Capital Chief Economist Shane Oliver said that low interest rates had been reflected in high house prices and increasing levels of debt, which had placed additional strain on households as wages were not keeping pace.

“People are borrowing more but their income is not going up the way it used to, so the burden is lingering for a lot longer,” he said. 

Mr Oliver said it would take much tighter labour market, lower unemployment and particularly lower underemployment to see an increase in wages.

“People have had jobs but they haven’t had the hours that they would like, so underemployment is quite high,” he said.

“If there was a significant rise in unemployment it could create problems for the property market.”

According to Mr Mickenbecker, three months was not a big enough buffer, as it can typically take people longer than that to find a new job if they are suddenly unemployed. “The reason [they are unemployed] usually is the industry they’re in is in decline,” he said.

Mr Mickenbecker encouraged borrowers to ask their lender if accommodations could be made if they were unable to make their regular repayments.

“The banks do have hardship provisions, so if someone finds themself in that position, the thing to do is go and talk to the bank. Don’t just stop the repayments,” he said.

Mr Oliver suggested borrowers could “consider locking in fixed rate mortgages to make themselves less vulnerable when interest rates rise.”

Almost one-third of survey respondents said they weren’t saving any money at all, and a quarter were saving less than a 10 per cent of their after-tax income.

Of those who weren’t saving any money each month, 78 per cent said they were living pay cheque to pay cheque.

“That’s just terrifying,” said Mr Mickenbecker. “These are people who don’t have any buffer at all, they’re spending all of their income, so they’re not getting ahead.”

In addition, 31 per cent of respondents felt “somewhat uncomfortable” or “very uncomfortable” with their personal financial situation.

“There are people who are struggling and they know they’re struggling,” said Mr Mickenbecker.​ “They may have credit card debt and rent that they can’t afford. They are people that if anything goes wrong, they’re in strife.” 

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