Ah… Australia the lucky country, right? The enviable lifestyles of beautiful people, knocking back Sauvignon Blanc and prawns in the endless sunshine, like there’s no tomorrow. Stereotypes aside, the reality for the everyday Australian is a far cry from this.
According to a survey released earlier this year by brokerage and investment group CLSA, almost half of us are cutting back on the finer things in life. That means wine and prawns of course, but all the other kinds of food and booze too. According to John Durkan, managing director of Coles Supermarkets, the rising cost of utilities is being felt in the shopping trolley. Across numerous stores, shoppers are steering away from dietary essentials such as meat and fresh vegetables, in fear of not being able to pay the power bill.
In fact, the finer things are just the tip of the iceberg, and we’re not talking the lettuce variety. Of greater concern are dwindling household disposable incomes combined with the generalised increased cost of living across the board for many families. Petrol costs, mobile phone bills and incidental expenses that come with day-to-day living have shifted gradually upwards. Not to mention the really important things like health care and housing.
The Reserve Bank’s June 30 figures revealed that Australian debt is at an all-time high, with much of the debt attributed to mortgages. To make matters worse wage growth has stagnated, with ABS figures released earlier this year showing annual wage growth at just 1.9 % - the lowest on record in almost 3 decades.
So, with no juicy pay rises in sight, interest rates constantly increasing and household debt higher than ever before, how do the banks respond? By making things harder it seems. The Australian Prudential Regulation Authority recently implemented risk reduction measures in response to the highly active east coast property market, by cutting back on interest-only loans and advising on reduced lending to investors. Various banks and lending institutions have responded by steering customers away from higher risk loan products and increased the rates on the rest.
At a time when hundreds of thousands of Australians are not just struggling to pay the mortgage, but at risk of defaulting, it seems almost inhumane to force borrowers to switch from interest-only loans (that have lower monthly repayments) to the higher monthly payments required in a principal-plus-interest mortgage agreement.
This kind of behaviour is not new however, a recent article in the Australian revealed that borrowers have had 7 rounds of interest rate increases inflicted upon them in just the last 2 years (since mid 2015); and these are increases independent of Reserve Bank increases too.
So now homeowners, who just two years ago might have felt they had a solid financial strategy in place, are now in the extremely challenging position of just trying to make ends meet.Have recent interest rate hikes impacted on your household disposable incomes? How are your mortgage payments impacting on your budget today as compared to two or more years ago?