Landlords are more comfortable, but what about tenants?
This may come as a surprise given the continued impact of the COVID-19 pandemic, but Australian household financial comfort has just hit an all-time high according to ME Bank’s latest household financial comfort report.
Drawing on the results of a survey of 1,500 Australian households in December, the report found that sentiment towards areas such as ‘cash savings’, ‘investing’ and “ ability to cope with a financial emergency ” all increased the most over the course of the second. half of 2020.
As a result, ME’s household comfort index hit 5.89 out of 10 – the highest of the 19 surveys conducted since 2011.
This is the second time the bank has checked the pulse since the start of the pandemic, ME Bank consultant economist Jeff Oughton attributing the new high to household resilience and the steps many have taken to reorganize their finances. .
“Households have increased their cash savings, reduced overspending, paid off debts and withdrawn retirement savings to improve their ability to cope with the emergency,” he says.
“This precautionary behavior supported by the large temporary support of government revenues and very accommodating banking and financial conditions undoubtedly helped bring financial comfort to a new record in December.”
However, Oughton expects this trend to start to reverse in the coming months.
“Although households reported a record level of financial comfort at the end of 2020, the underlying economic and financial drivers indicate that this peak could be temporary and potentially canceled in 2021.
“A decline in household financial comfort is likely to occur over the next six months as government support – particularly JobKeeper and JobSeeker – is phased out. Australia’s labor market also remains weak, with many workers reporting very high underemployment, expected increased difficulty in finding employment, and moderate wage earnings where applicable.
Record mortgage comfort continues
As part of its research, ME looked at the comfort levels associated with housing costs among three groups: homeowners without a mortgage, homeowners with a mortgage, and tenants.
Continuing past trends, direct homeowners again reported the highest level of financial comfort among the three groups with a score of 6.77 out of 10, while the scores of mortgage holders (5.63) and tenants (4.95) remained relatively stable.
Despite this, the comfort levels of mortgage holders actually remain at record levels, with mortgage rates and, to a lesser extent, assistance from lenders in the form of mortgage holidays probably helping to build confidence.
“We have people with higher levels of savings, a booming real estate market, and interest rates that are likely to stay low for the foreseeable future – all of which are helping to increase the optimism of mortgage holders.” , Oughton said.
Perhaps unsurprisingly, low interest rates also appear to ease “mortgage stress”, as ME has found that households are paying a lower proportion of their disposable income for their mortgage payments than before.
Roughly 4 out of 10 households with a mortgage loan (38%) said they spent more than 30% of their income on their repayments in December 2020 – a decrease from 42% in June 2020.
The income / rent ratio remains high, despite the decrease
While rent prices have fallen in many parts of the country due to rising vacancy rates, tenants continue to find themselves worse off than mortgage holders – at least in terms of the proportion of the mortgage. disposable income that they spend on rent.
The ME Bank study found that a considerable number of 1 in 5 tenant households (21%) pay more than 50% of their disposable income in rent, although this is actually a decrease from the 26% figure recorded in June 2020.
Meanwhile, around 3 tenant households out of 5 (59%) spent more than 30% of their income on rent, which, again, is lower than the 65% figure in June 2020.
“Traditionally, people have said that paying more than 30% of your income puts you in rent or mortgage stress, but as research shows, a lot of people pay that or more,” Oughton says.
“Many tenants not only have lower incomes, but limited incomes – so they may depend on government assistance such as a single parent’s allowance or a pension due to age. Unfortunately, this can put people in this situation of permanent rental stress. “
For more information and extras see the March 2021 edition of ME Bank Household financial comfort report.
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