Aussie borrowers' relationship with debt

by Madison Utley19 Feb 2020

ME Bank’s latest Household Financial Comfort Report has revealed an improvement in sentiment across the six months to December 2019, largely felt in the subset of the population currently paying off a mortgage. 

Of the 11 “key drivers” the index considers, the biggest improvement came in ‘comfort with debt’, up 5% to 6.55 out of 10, a record high.

“Significantly lower home loan rates and relatively low and stable unemployment rates helped to significantly improve ‘comfort with debt’ – especially in major capital cities, while a partial reversal of the fall in residential property prices in eastern capital cities and expectations of further price gains have also eased gearing concerns,” explained ME’s consulting economist, Jeff Oughton.

This iteration of ME’s biannual report was the first to ask households if they thought they were ‘better’ or ‘worse off’ as a result of the record low Reserve Bank cash rate.

Half reported they weren’t impacted in either way, while 27% felt they were better off and 23% indicated they were worse off.   

“Those households paying off a mortgage felt they were far better off than those renting or who already own their homes,” said Oughton.

“When it came to investors with debt, results show they feel they’ve benefitted the most (60% ‘better off’) from the flow on to record low mortgage rates – an indication of the high level of gearing among residential property investors in Australia.”

Young singles and couples with no children appeared to be the “biggest winners” in this regard, with over half of the former saying they were ‘better off’, and 41% of the latter feeling the same.

More generally, over a third – 36% – of households feel their “financial situation had improved over the past year”, citing reduced living cost pressures, fewer falls in income, and improvements in employment status and cashflow.

Households in capital cities, households paying off a mortgage and households with higher annual incomes, especially those greater than $100k, were dubbed the report’s “winners” by ME Bank.  

The “losers” included households in regional areas, especially those in Queensland, casual workers, single parents and renters.