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Has mortgage stress and housing affordability been at the forefront of your mind?

The economic challenges derived from COVID-19 has left many Australians with an unclear view of their financial future with the question of mortgage stress on certain homeowners minds.

Let’s define mortgage stress.

Mortgage stress is often being referenced daily, due to the current COVID-19 pandemic and its effect on the Australian economy.

Although interest rates are at a historic low, factors such as reduced work hours, reduced working days per week, or even sudden unemployment have significantly impacted a household’s ability to service their mortgage.

How to determine if you are experiencing mortgage stress?

The simplest method which can be used to determine if you may be experiencing mortgage stress is to calculate if your mortgage repayments are equivalent to 30% or more of your combined pre-tax household income.

Certain housing institutes such as DG Institute, AHURI, have stated that determining if you are in mortgage stress is more complex than the 30% mortgage-to-income ratio, as this ratio may not take into account certain factors such as paying more into a home loan, or having an above-average income level.

For example, a high-income household may choose to spend more than 30% of household income to improve their future housing goals, such as potentially using equity to purchase another property or fund renovations. In this example, due to their high income they still have more than sufficient money, after housing costs, to pay for living, education and everyday expenses.

The effect on housing prices as a result of mortgage stress.

Although mortgage stress has been reported at 12.4% by Roy Morgan Data [1], historically low-interest rates have led to a spike in lending, with a 71% increase in loans to first home buyers since January 2020. Whilst at the same time, Australia's property prices have recorded their sharpest increase since 2003 as noted by CoreLogic Australia [2].

The key aspect to be taken into consideration is not only current mortgage stress, but also potential future mortgage stress. An easy way to do so is to factor in higher interest rates, potential loss of employment, or by paying additional on top of your existing mortgage repayments should an unforeseen circumstance occur.

Key Takeaways.

Before purchasing a property, it is important to understand how your ability to service a loan may be impacted by adverse changes in your financial circumstance. In this regard, it is advised that you seek the guidance of an appropriately qualified professional such as a financial planner, accountant or legal provider before making an investment decision.


Looking to get the property investment conversation started?

Or, just looking to stay in the loop?

Victor Erzikoff – Sales Administration and Client Liaison Manager

P: (02) 9939 3249

Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your individual circumstance.



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