Rising unemployment could push one million homes into mortgage stress

Australian homes are experiencing relief from mortgage stress, but over one million households will enter a period of anxiety if the unemployment rate reaches the Government’s forecast 7.5%, a new survey has found.

The April 2009 Mortgage Stress-O-Meter, compiled monthly by information technology and consultancy firm Fujitsu, has found that mortgage stress dropped 2.8% from March.

About 568,000 households are experiencing broad mortgage pain, down from a peak of 900,000 in August 2008.

But pain is still widespread, with the number of “severely stressed” homes rising 3%, and about 101,000 homes are still at risk of having to sell their property. “Mild stress” is now being felt by about 4.9% of homes.

The survey also shows that over one million homes will feel some type of mortgage stress if the unemployment rate reaches 7.5%. While the Government has forecast the unemployment rate to reach 7.5% next year, the International Monetary Fund has said that it may hit 7.8%.

Fujitsu managing director Martin North says about one-third of homes will also be considered “close to the edge”, meaning they will have some form of stress while attempting to make repayments.

“Mortgage stress simply means people are paying their mortgages on time but doing so with some difficulty, like cutting back on expenditures. It doesn’t mean that everyone will default, but the degree of difficulty people will be under will be higher.”

North also says the number of homes blaming lower investment returns as a reason for mortgage stress jumped by 35%, and that wealthier households are now feeling more mortgage stress.

“The issue is that last year we had a lot of mortgage stress, but interest rates have come down so people have relief,” North says.

“But factors have gone against that – those that are more affluent have also suffered considerable loss because of investment performance and interest on deposits. Then we have this issue of fear of unemployment that’ll have an impact.”

The survey also reveals that about 80% of homes with a fixed rate mortgage have considered refinancing, but did not do so to avoid fees – about 42% say they would have had to pay over $10,000 in fees. 

North says those families forced to sell their property will lose 6% of their value compared to a willing sale, and that a foreclosure will lose 13% of value. But he claims that many families do not realise they are in “mortgage stress” until they are already in trouble.

“If you look at young families, most families are dealing with mortgage stress but get by; they put stuff on credit cards. But at the more affluent end some families are having a new experience,” he says.

“They’re used to a lifestyle that’s not constrained, and what we’re discovering is that people are just in shock.”

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