Are your stress levels going up with interest rates?
Update 3pm: The RBA surprised everyone and left interest rates on hold today.
In recent years a horrendous new phrase has appeared to describe people struggling to make ends meet. They’re suffering from “mortgage stress.”
This week it was reported almost half of the young people who availed of the Rudd Government’s increased help for first-home buyers were suffering from this terrible condition. If true life will get a whole lot more stressful for them over the coming months as interest rates return to normal, starting most likely with a Reserve Bank announcement this afternoon.
Where did this “mortgage stress” phrase come from, anyway? It sounds like some kind of psychological disease that should be covered by Medicare. As far as I can tell what it actually means is you have borrowed too much money.
Anyone who is doing it tough after losing a job or having work hours cut or for other unforseen reasons deserves sympathy. But if the reason you can’t pay your bills is you overborrowed, bought a house that’s too big or failed to listen to the warnings that interest rates would go up, then person most to blame is yourself.
I say “most to blame” because I there’s some missing leadership from politicians on this, particularly for failing to adequately communicate the risks of buying a house when interest rates were down at Tiger Woods’ average number of shots per hole.
Because supporting people in making a sensible household budget doesn’t neatly fit into a government portfolio nobody really cares about it; anyone buying a house in this situation falls between two policy chairs. Housing Minister Tanya Plibersek is trying to address undersupply and give people help to buy homes while Treasurer Wayne Swan is trying to manage the release of billions of dollars of government money in a way that stimulates the economy but doesn’t cause inflation to get out of control.
Of course there’s no legislating against reckless optimism, banking that you’ll get that pay rise, or living beyond your means.
But there are signs that Australians have some trouble with managing personal debt, and some of it to dangerous levels. Up to last November, Australians owed $46 billion on credit cards alone. And that was before the Christmas shopping and January sales.
House prices barely wobbled during the global financial crisis and last quarter saw the biggest increase in house prices nationwide since 2003. This is a testament to national optimism but when you see the figures in the - wince - mortgage stress survey, you have to wonder what the cost of it is going to be.
Fujitsu found 45% of first home owners were in “mortgage stress”, some of them were using credit cards to help make their mortgage repayments, and many were already in arrears on their loans.
The screws will be tightening over the months ahead. Might be time to chuck one of those credit cards or move house.
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