Fujitsu Consulting today released the latest edition of the Mortgage Stress Survey – the Mortgage Stress-O-Meter which is based on a rolling 26,000 consumer survey.
Martin North, Managing Consulting Director, Fujitsu Consulting said the latest results “highlight the fact the despite recent cash rate reductions, growing unemployment, house price falls and the global financial market difficulties will all conspire to bring more households into some degree of mortgage stress”.
This could reach over 1 million households by March 2009. “There is a strong case for further cash rate reductions to offset this.” There was some good news in September thanks to rate cuts and tax changes, and as a result the number of households in Mortgage Stress fell by 10% to 800,000. Those in Severe Stress fell by 19% to 256,000, whilst those in mild stress fell by 5% to 538,000.
Consumers were pleased to hear about the 1% rate cut in early October, and were hopeful of more cuts later. However this is overshadowed by forward projections which, despite factoring in further interest rate reductions, also took account of expected rising unemployment. The net result is a significant rise at 27% to over 1 million households suffering some degree of mortgage stress by March 2009, and a 42% rise in Severe Stressed households thanks to increasing household costs, credit debt and job losses.
Mortgage Stress is not confined to the battlers. Affluent Stress is on the rise, thanks to further stock market falls, margin calls and rising costs of living. In addition, a number of “sea change” suburbs are being hit by forced sales as superannuation returns are dropping. Young Growing Families in Western Australia are also being severely hit. Recent downturns in the mining sector will likely have a significant negative impact.
“We found that households are continuing to refinance to try and escape stress, and over 30% of these transactions include paying down credit card debt. As a result core equity is being lost to support current spending behaviour,” Mr North commented. “An additional 30% is driven by the need to try and reduce monthly outgoings.”
During the research, Fujitsu also found that 15% of households have experienced a reduction in overtime payments in the last three months, 35% of people employed by small businesses have had hours reduced, and employment uncertainly was the number one issue leading to increased mortgage stress.
“The findings are very concerning as it shows that despite the potential for more rate cuts in coming weeks, the spectre of falling employment is offsetting the potential benefit,” Mr North said. “The double whammy of unemployment and higher cost of living are driving more people into stress. This will lead to further house price reductions in many suburbs.”
The Stress-O-Meter is assessed by surveying households about their spending patterns using a series of structured questions that demonstrate their ability to finance their debt. Updated monthly, data is incorporated in the rolling 26,000 consumer sample. Households are segmented into around 11 groups with discrete and disparate characteristics. This enables the Stress-O-Meter to highlight where stress is most prevalent. Rather than using the blunt 30% of income rule,
Fujitsu Consulting asks a series of structured questions to determine whether households are having to cut back on their spending, put more on credit cards (mild stress), or have serially refinanced, decided to sell up or been foreclosed (severe stress). This is a significantly more accurate measure of real stress. On average 5% of people in severe stress will go on to default on their mortgage.
Background information is available in Fujitsu Consulting’s Anatomy of Mortgage Stress Report previously published. . - Ends –
Notes to Editors: State-by-state data is available on request.