One million stressed households by Christmas

Sydney, July 28, 2008

More than 1 million Australian households are projected to experience some form of mortgage stress by December this year, according to the latest Fujitsu Consulting / Wizard Home Loans Mortgage Stress-O-Meter.

Fujitsu Consulting Managing Consulting Director and Executive General Manager, Martin North, said the projections equated to 15 percent of all borrowing households – both owner occupiers and property investors.

“Approximately 837,000 Australian households are experiencing some form of mortgage stress, up from 784,000 in May 2008,” Mr North said.

“Stress continues to rise in line with our projections, so that by the end of the year 39 percent of growing young families will be hit.”

Mr North said that while Fujitsu and Wizard do not anticipate the Reserve Bank of Australia will raise interest rates, credit costs continue to escalate.

“Our research takes into account recent tax changes which provide some relief, but they were mopped up by ongoing rate rises. The Credit Crunch is clearly having an effect on RBA policy, but our report predicts major lenders to continue out-of-cycle rises of up to 0.3 percent before December,” Mr North said.

Chairman and founder of Wizard Home Loans, Mr Mark Bouris, urged Australians experiencing financial problems to act now before it was too late.

“There are almost 7 million active mortgages at the moment, which are funding either people’s homes or investment properties,” Mr Bouris said.

“But the sad fact is that come Christmas time, we estimate that 1 million Australians will suffer mortgage stress.

“That’s a huge number of people that are potentially going to face losing their property unless drastic action is taken.”

Mr Bouris said that while the Consumer Price Index (CPI) had increased significantly in the past year, it wasn’t because people were spending money on luxury items.

“Continued increases to essential items are sucking up every spare cent people have, and as a consequence, too many people are struggling to make ends meet.”

“Additionally, decade-high interest rates, softening house prices, increased share market volatility and sky rocketing petrol costs are unequivocally combining to hurt an unprecedented numbers of Australian households.”

Mr North said the CPI increase of 4.5 percent between the June 2007 quarter and June 2008 represented the largest annual change since the December quarter 1995 (excluding the period associated with the introduction of the GST).

“Averaging masks the severe pain in specific postcodes. Young families and mainstream suburbia are hit hardest. For young families the actual CPI is much higher. Our research shows that even with the tax changes, in the last 12 month, mortgage costs have risen on average by 18 percent, food by 17 percent and petrol 10 percent.”

Mr Bouris implored anyone struggling to either pay their bills or meet their financial commitments to investigate options to redeem their finances before it’s too late.

“People have to draw a line in the sand and get serious about their finances. To facilitate this, we've prepared a website - www.wizard.com.au/stresstips - to ensure people understand what mortgage stress is, and are able to recognise the early warning signs, he said.

“If you’re starting to experience financial difficulty and you want to hang on to your house, you owe it to yourself to access this information,” he said.

Mr North said the national education campaign was needed now more than ever.

“Every 0.25 percent increase in interest rates means 150,000 additional households will move into stress, of which five percent will ultimately default.

“However the majority will sell first and move into rental. This is putting extra pressure on rentals at a time when four percent of investment borrowers are also selling up.

The June Fujitsu Consulting / Wizard Home Loans Mortgage Stress-O-Meter found that of those in severe stress, 83 percent cited interest rates as causing their predicament, followed by petrol prices at eight percent; personal circumstances (such as divorce and illness) at seven percent and other reasons two percent.

The Stress-O-Meter is assessed by surveying households about their spending patterns using a series of structured questions that demonstrate their ability to finance their debt.

Updated monthly data is incorporated in the rolling 26,000 consumer sample. Households are segmented around 11 groups with discrete and disparate characteristics. This enables the Stress-O-Meter to highlight where stress is most prevalent.