09 Aug 2010

Aussie households relaxed about their mortgages

Australians are more comfortable with their home loan than any other aspect of household finances – 48 per cent of mortgage holders are making extra repayments on their home loan while only 3 per cent are struggling to meet repayments.

These statistics, taken from ING Direct’s quarterly Financial Wellbeing Index, reveal that Australian households managed much better than expected in the second quarter of 2010 and prove that economic pessimism is baseless.

ING Direct, Australia’s fifth largest retail bank, launched its first quarterly Financial Wellbeing Index last week providing a holistic picture of Australian households and giving an overall perspective on how the nation feels about different aspects of money matters.

During the first half of 2010 households experienced an upswing in financial wellbeing, the Index rising from 108 in the first quarter to 113 by the end of the second quarter.

In general Australians are working hard to trim personal debt. Across the board, credit card balances, personal loans and even mortgages are being steadily whittled away and households are feeling better for it; now more comfortable about their debt than any other aspect of personal finance.

But the sense of wellbeing is offset by concerns about weak household savings. Comfort levels for savings and investments are the lowest across our six focus areas. Without the back up of savings, many households are exposed to unexpected bills and without a diversified pool of investments re failing to build for the future.

Australians continue to embrace credit cards. Over 80 per cent of households own a credit card, with an average holding of two cards per household (including bank and store cards). Only 12 per cent of households don’t own a credit card and these tend to be low income earners, typically retirees.

The majority of cardholders are managing their credit cards well – 61 per cent aim to pay off their card in full every month. Only 3 per cent say their card balance is increasing each month and 4 per cent describe their card debt as being out of control.

Despite higher rates, mortgages are also under control. Even with two increases in the official cash rate in Q2, Australians are more comfortable with their long term debt (mortgages plus personal loans) than any other aspect of financial wellbeing. This reflects a serious effort by many home owners to get ahead of their loan. Almost one in two mortgage holders (48 per cent) are making extra payments, up from 46 per cent in Q1.

As a result of additional repayments, the median mortgage balance nationwide has dropped from $177,259 in Q1 down to $175,509 in Q2. This is all the more remarkable given the strength of property prices over the first six months of 2010. Only 3 per cent of mortgage holders nationally are falling behind with their loan repayments.

Managing the mortgage is proving toughest for large families (comfort level of 5.3), while singles (comfort level of 6.7) and pre-retirees aged 55-69 (comfort level 6.8) are finding it less of a challenge to accommodate their home loan.

(From a State perspective South Australians are least comfortable with their home loan. Fewer than one in three (32 per cent) South Australian mortgage holders are ahead of their home loan repayments compared to 52 per cent in NSW and 53 per cent in West Australia. This is despite South Australian households also enjoying one of the nation’s lowest median mortgage balances of $166,200 compared to $182,600 in NSW.)

Savings is the black spot of the nation, scoring a comfort level of 3.6 out of 7 – the lowest score across the six financial wellbeing focus areas.

In their bid to pay down debt, many households are finding there simply aren’t funds available to build savings and they continue to dip into spare cash at an alarming rate.

Almost one in three households (31 per cent) are “very uncomfortable” about their savings, up from 26 per cent in Q1.

Most worrying is the fact that 17 per cent of households have no savings at all. While these are likely to be low income earners, high income households are also feeling the pinch – 11 per cent of households earning annual incomes of $100,000-plus report having zero savings.

Illustrating the extremes of personal saving levels, more that one in four households (29 per cent) have just $1,700 in spare cash. At the other end of the scale, 13 per cent have over $67,000 tucked away.

Victorians are the nation’s best savers.

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