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Property prices driving more ACT households deeper into the red

By Ian Bushnell - 19 September 2017 5

Housing affordability

Nearly a third of Canberra households owe three or more times their disposable annual income, according to the latest data from the Australian Bureau of Statistics.

The ABS’s survey of Household Income and Wealth, Australia, 2015-16 shows 29 per cent of people in the ACT have debt three or more times their annual income, up from 18.7 per cent in 2003-04.

The data also shows there are 5.4 per cent of Canberra households with debt that is 75 per cent or more of their assets.

The proportion of indebted households in the ACT has increased by nearly 10 per cent since 2003-04, with 119,300 households in the red, up from 91,600 in 2003-4. This represents 80.7 per cent of all households, up from 71.1 per cent in 2003-4.

Of those with property debt, more than a half (56.4 per cent) are over-indebted, with 34,500 households struggling to meet their mortgage repayments.

Average weekly mortgage repayments in the ACT are second only to Sydney ($675 ) at $587 a week, with the average amount owed at $569,000. However, overall housing costs were below the national average ($305.85) at $295.46, with most other expenditures higher than the national average.

The ABS said rising property values, low interest rates and a growing appetite for larger debts had contributed to increased over-indebtedness, with the proportion of over-indebted households in Australia climbing to 29 per cent of all households with debt in 2015-16, up from 21 per cent in 2003-04.

ABS Chief Economist Bruce Hockman said national average household debt had risen to $169,000 in 2015-16, an increase of $75,000 on the 2003-04 average of $94,000.

“Around one-in-four households with debt – 27 per cent – had debt equal to three or more years’ worth of their disposable household income in 2015-16,” Mr Hockman said.

“A further two per cent of households held debt equal to three-quarters or more of the value of their households’ assets. Based on either of these comparisons, around three-in-ten of households with a debt (29 per cent) in Australia are considered to be ‘over-indebted’.”

Just under half of all households with a mortgage were over-indebted in 2015-16, with younger property owners in particular taking on greater debt. Three-in-five households (62 per cent) headed by a 25-34 year-old, and one-in-two (51 per cent) of 35-44 year-old households who held a property loan were over-indebted.

“Nearly half of our most wealthy households (47 per cent) who have a property debt are over-indebted, holding an average property debt of $924,000. This makes them particularly susceptible if market conditions or household economic circumstances change,”  Mr Hockman said.

The ABS said Sydney and Melbourne had the highest actual number of property owners who were over-indebted, with over-indebted households with a property in Sydney owing an average of $765,000 – $269,000 more than the average property debt of their Melbourne counterparts.

Over half (55 per cent) of Perth property owners were over-indebted, and owed on average $574,000 per household in property debt. However, Darwin was the capital city with the highest rate of over-indebtedness among property owners at 69 per cent, with households owing on average $581,000 in total property debt.

The ACT still enjoys the highest average disposable incomes in the nation but in the five income bands or quintiles reported the lowest, showing an average weekly equivalised income of only $361, lower than the national average.

Are Canberrans’ debt levels unsustainable? Are you struggling to maintain your mortgage repayments?

What’s Your opinion?


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5 Responses to
Property prices driving more ACT households deeper into the red
bj_ACT 3:27 pm 20 Sep 17

devils_advocate said :

Mortgage stress is a bit of a furphy. It’s a blunt instrument because the more people earn in absolute terms, the greater the proportion of their income they can choose to spend on housing – which many do, because it’s what’s known as a “merit good”.
Leaving aside investment properties (and the paper tax losses) and looking just at the residence I live in, with a mortgage that doesn’t leave much change from a million, that eats up more than 30 per cent of my income (which I understand is the test for ‘mortgage stress”). However I’m well in advance on my repayments and have plenty left over to live on, as well not in any immediate danger of going into negative equity, so I don’t consider myself to be in mortgage stress. that’s largely because as my income has increased I’ve tended to pour that extra money into housing rather than luxury items (in addition to the compulsory saving of superannuation).

I think you make some valid points, but based on your ability to pay well above the minimum repayment on a Million dollar mortgage you are probably on a pretty high income. The mortgage stress issues for people in the outer suburbs are generally about the working poor home buyers who have a $500k mortgage but only earn minimum wage in retail, odd jobs, construction etc and this work may not be not full time or consistent.

Whilst as you say the ABS and other economists often measure Mortgage stress with the 30% of income method, more advanced analysts are asking homeowners questions such as whether they had reprioritised general spending patterns to make mortgage repayments and they also collect data such as to whether they had missed a mortgage repayment.

The Banks themselves and finance analysts with access to better data, will have a much better idea whether the people they lend to in Charnwood or Kambah for example, are missing loan re-payments, only making minimum re-payments, extending their loan amounts on the existing property, transferring credit card debt back onto the house etc.

As the son of a Canberra family with a father in retail who bought a $30k house in 1974 and had to sell it to wipe off a $160k debt after the 18% interests rates, I really feel for the ignored homebuyers who aren’t high earning Public Servants but are stuck with a high mortgage, increasing rates and increasing power prices etc.

My father still has to work in his late 70s to pay the private rent for somewhere to live, but can’t get into Public housing because he earns money to cover the rent (it’s a vicious cycle).

devils_advocate 4:27 pm 19 Sep 17

Mortgage stress is a bit of a furphy. It’s a blunt instrument because the more people earn in absolute terms, the greater the proportion of their income they can choose to spend on housing – which many do, because it’s what’s known as a “merit good”.
Leaving aside investment properties (and the paper tax losses) and looking just at the residence I live in, with a mortgage that doesn’t leave much change from a million, that eats up more than 30 per cent of my income (which I understand is the test for ‘mortgage stress”). However I’m well in advance on my repayments and have plenty left over to live on, as well not in any immediate danger of going into negative equity, so I don’t consider myself to be in mortgage stress. that’s largely because as my income has increased I’ve tended to pour that extra money into housing rather than luxury items (in addition to the compulsory saving of superannuation).

dungfungus 2:29 pm 19 Sep 17

bj_ACT said :

My view is the ABS takes a too simplistic approach to measuring mortgage debt and mortgage stress through the CENSUS and through the Household Income Survey. ABS do not fully capture enough data items and do not take enough factors into account around the geospatial, banking/finance, demographic, housing values and property mix of Suburbs.

The lenders themselves have a much better understanding of these issues (I guess they have to).

Just think about the differences In Canberra between a brand new Suburb like Coombs (with high mortgages and many first time buyers). An older Suburb like Richardson (with lower average mortgages but poorer people who can’t afford to move). Then to a Suburb like Red Hill with (High Mortgages from new people moving in, but high Incomes and high asset rich home owners).

The leading expert in this field in Australia is Martin North (The go to guy for the Finance Industry and for the public and commercial media). He takes a far more in depth approach to measuring Mortgage Stress.

He Recently did a great report for Four Corners and they have an interactive map where you can Click on Canberra for more info and a map. Martin did a report in 2015 that found that Kambah & Wanniassa were the most Mortgage Stressed areas in all of Australia. Kambah remains clearly the most mortgage Stressed area in Canberra in the latest report with a staggering 77% of mortgaged households in the Suburb/Postcode already under Mortgage Stress. Kambah is now reaping what the experts warned would happen to a Suburb when the ACT Government closed schools, reduced services, increased public housing and locked in poorer home owners whilst deterring young families to move to Kambah.

http://www.abc.net.au/news/2017-08-21/how-interest-rate-rises-could-affect-home-loan-stress/8798274

http://www.digitalfinanceanalytics.com/blog/the-top-100-postcodes-at-risk-of-mortgage-default/

https://imageshack.com/i/poinICr2j

Good comment and here is another link which doesn’t mention the ACT specifically but the message is loud and clear.

http://www.msn.com/en-au/money/homeandproperty/mortgage-arrears-hit-record-levels/ar-AAs6YMY?li=AA54Gb&ocid=spartanntp

bj_ACT 1:05 pm 19 Sep 17

My view is the ABS takes a too simplistic approach to measuring mortgage debt and mortgage stress through the CENSUS and through the Household Income Survey. ABS do not fully capture enough data items and do not take enough factors into account around the geospatial, banking/finance, demographic, housing values and property mix of Suburbs. The lenders themselves have a much better understanding of these issues (I guess they have to).

Just think about the differences In Canberra between a brand new Suburb like Coombs (with high mortgages and many first time buyers). An older Suburb like Richardson (with lower average mortgages but poorer people who can’t afford to move). Then to a Suburb like Red Hill with (High Mortgages from new people moving in, but high Incomes and high asset rich home owners).

The leading expert in this field in Australia is Martin North (The go to guy for the Finance Industry and for the public and commercial media). He takes a far more in depth approach to measuring Mortgage Stress.

He Recently did a great report for Four Corners and they have an interactive map where you can Click on Canberra for more info and a map. Martin did a report in 2015 that found that Kambah & Wanniassa were the most Mortgage Stressed areas in all of Australia. Kambah remains clearly the most mortgage Stressed area in Canberra in the latest report with a staggering 77% of mortgaged households in the Suburb/Postcode already under Mortgage Stress. Kambah is now reaping what the experts warned would happen to a Suburb when the ACT Government closed schools, reduced services, increased public housing and locked in poorer home owners whilst deterring young families to move to Kambah.

http://www.abc.net.au/news/2017-08-21/how-interest-rate-rises-could-affect-home-loan-stress/8798274

http://www.digitalfinanceanalytics.com/blog/the-top-100-postcodes-at-risk-of-mortgage-default/

https://imageshack.com/i/poinICr2j

Grail 11:30 am 19 Sep 17

I have about $700k worth of debt for properties I do not even live in. I must be in a really bad position, right?

If you can get me a 3.5% interest rate, P&I, fixed for five years, I will be your best friend 😀

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