Household financial comfort fell across regional Australia: ME Bank

Household financial comfort fell across regional Australia during the six months to December 2019, according to ME Bank’s latest Household Financial Comfort Report.

While ME Bank’s latest biannual survey showed the financial comfort of metropolitan households increased 3% to 5.76 out of 10 to near record highs – especially in eastern Australia – financial comfort for regional households fell 4% to 5.08, continuing a decline over the past year to approach its lowest point in the past eight years.

ME’s Consulting Economist, Jeff Oughton, said the gap in financial comfort between regional and metropolitan households had now reached a record 13%, almost twice the historical average of 7%.

“The sharp fall in financial comfort in regional areas is likely a result of ongoing drought and recent bushfire catastrophes, which have significantly lowered already low levels of financial comfort."

"‘Comfort with cash savings’ fell 9% and the ‘ability to deal with financial emergencies’ fell 7%, while long-term retirement comfort deteriorated, with ‘anticipated standard of living in retirement’ down 7%."

"Regional Queensland reported the largest fall in comfort, down 14% to 4.95, dipping below regional New South Wales (5.09) and Victoria (5.20)."

“In contrast, the improvement in the financial comfort of metropolitan households reflected significant gains in all key drivers, with record high levels of comfort approached in Sydney (up 1% to 5.94), Melbourne (up 3% to 5.91) and Brisbane (up 10% to 5.82).”

Record low mortgage rates and rising house prices improving comfort with debt in the major cities

Across the 11 key drivers that make up ME’s Household Financial Comfort Index, the biggest improvement was with ‘comfort with debt’, up 5% to 6.55 out of 10, reaching record highs. ‘Comfort with debt’ increased 7% for households in metropolitan areas, particularly those with mortgages on their homes or on an investment property.

“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,” said Oughton.

Mortgage stress eases further and expected debt management improves Consistent with a significant fall in home loan rates, sustained low unemployment and improved property prices in most of Australia, mortgage stress eased a bit further during the past six months.

Nevertheless, there remains generally high levels of mortgage stress and significant other financial stress amongst households.

Record low Reserve Bank official interest rates helping, but divide households

For the first time in the latest survey, ME asked households if they thought they were ‘better’ or ‘worse off’ as a result of the historically low official interest rates.

Overall, slightly more households reported being better off (27%), compared to worse off (23%), while the remaining half of households reported they weren’t impacted positively or negatively.

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

In terms of life stage, young singles and couples with no children appeared to be the biggest winners, with over half (51%) saying they were ‘better off’, followed by couples with young children (41%).

Property price optimism revised higher

The report revealed household optimism regarding the outlook for residential property prices has continued, with both owner occupiers (47%) and investors (51%) revising up price expectations for 2020.

Brisbane investors and owner occupiers were the most optimistic about higher property prices (67% and 61%, respectively), followed by Melbourne owner occupiers (55%) and Sydney investors (51%). Owner occupiers in Perth (29%) remain the least optimistic in this regard.