Insolvency Experts

The number of households facing mortgage stress has risen to a 16-month high with increases in interest costs outweighing improvements on the jobs front.

Some 218,700 Australian households were at risk of having to sell, refinance or lose their homes in February, according to the Fujitsu Mortgage Stress-O-Meter, up 2 per cent from the previous month.

”Across Australia the average loan size since 2005 has risen by 40 per cent underlining that affordability remains a major issue,” said Fujitsu’s executive director Martin North.

Further ”as interest rates rise, this leverage effect will have a significant impact on the local economy…..” with more of one’s income directed toward servicing the mortgage rather than being spent in the economy.

Overall, the number of households experiencing ‘’some degree of mortgage pain” rose by 0.7 per cent in February, to about 581,000 – the most since December 2008.

”It’s people who have entered into the market in last 18 months who are most exposed.”

The report shows interest rates as a cause of stress increased by more than 11 per cent in February.

Each interest rate rise adds at least $46 to the cost of monthly variable mortgage repayment costs on a typical $300,000 loan over 25 years.

Fujitsu defines ‘’severe” mortgage stress as households behind in their repayments, forced to sell, refinance, or under threat of losing their homes.

”Mild” mortgage stress is defined as borrowing more on loans, refinancing, or reprioritizing expenditures to make mortgage payments.

The spike in first-time home owners helped drive up house prices, analysts say, forcing buyers to take out larger loans for houses which posted an average 13.6 per cent rise in average value nationwide last year.

Housing finance figures out yesterday showed that the average loan for a first-home owner was $284,700, or larger than the average loan overall of about $282,000.

The RBA warned yesterday that Australia’s housing shortage, exacerbated by population growth, setting house prices up for further increases if the issue isn’t addressed by government and industry.

Fujitsu estimates house prices will rise by as much as 12 per cent over the next 12 months.

Mortgage repayment stress attributed to higher costs of living rose 3.4 per cent in February. However, the fear of unemployment fell by 6 per cent in the month, while actual joblessness as a motive for mortgage stress eased by 1 per cent, Fujitsu said.

The Fujitsu report is based on the survey of 2000 households drawn from a pool of 26,000 statistically representative respondents.

Article excerpts smh.com.au