Over in the UK, tough new regulations will soon be introduced in an effort to reduce mortgage stress among homeowners. The Mortgage Market Review (MMR) will come into effect on April 26, forcing lenders to investigate the affordability of an applicant’s requested loan more fully.
The new regulations will apply to borrowers applying for their first home loan, and to current homeowners looking to refinance. Not only is this expected to help reduce irresponsible lending, it should also help to reduce the number of homeowners experiencing mortgage stress.
Mortgage stress and Australia
So, what exactly is mortgage stress? And how is any of this relevant to Australian homeowners?
Mortgage stress is the term used to describe homeowners who put more than 35% of their income towards their mortgage. It’s generally accepted that if you are paying more than a third of your income into your home loan, you will suffer from mortgage stress.
And it seems mortgage stress is a very real problem for many Australian households.
According to welfare group Mission Australia, there are numerous mortgage stress hotspots throughout Australia, spread between wealthy areas and some of the most disadvantaged.
Image: The Australian
Some of the worst affected regions include the Sydney areas of Botany, Canterbury, Merrylands-Guildford and Bankstown, Mandurah in Western Australia, and Sandgate and Strathpine in northern Brisbane.
Mission Australia spokesman Martin Thomas said, “People across the country are struggling to afford the cost of putting a roof over their head, and in the worst hotspots it’s reaching crisis point.
“The housing affordability crisis is hitting both ends of the market – with many people struggling to meet their increasing mortgage costs, while others can’t afford to pay their rising rent.
“A comprehensive solution from all levels of government, business, and the community sector is needed to address these housing affordability challenges and deliver more affordable housing so all Australians can afford a place to call home.”
Reducing the stress
While Mission Australia makes its calls to action to government, business and community organisations, there are steps that homeowners who are experiencing mortgage stress can take.
First up, take stock of your situation and get the advice of a professional, such as a mortgage broker. 1300 Home Loan can advise you on what options you have available, such as refinancing your mortgage to make it more affordable, or even downsizing to a more affordable property.
Create a budget, including incomings and outgoings, and work out if there is anywhere you can cut back. Consider taking on extra work, or renting out a room in your house.
If you have high interest debts, work out how you can pay them down faster. Or consider consolidating your debts to pay a lower repayment amount (bear in mind that with this option, you may end up stretching your debt over a longer period of time, and paying back more in interest overall).
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