ME’s 10th biannual Household Financial Comfort Report has found a marked and worrying deterioration in Australian households’ confidence in their ‘ability to manage debt over the next six to 12 months’, doubling from about 5% over the past few years to 10% as at June 2016. This comes in the face of a historically low official cash rate and annual inflation running at just 1%.
Consistent with an expected rise in debt stress, more households ‘paying off or owning a home’ reported to be drawing on their home equity to ‘pay off debt’ (up 4 points to 11%) and ‘to make ends meet’ (also up 4 points to 10%) during the first half of 2016.
Jeff Oughton, ME’s consulting economist and report co-author, said that there is a marked increase in households feeling vulnerable to income shocks associated with wage cuts, fewer hours worked and a lack of suitable jobs as well as lower dwelling prices in some parts of Australia, all of which increases debt stress.
“With a lack of cash savings or equity buffer in their home, there’s a marked increase in households expecting to be unable to service their debts, despite record low borrowing costs,” he said.
“The findings clearly indicate heightened concerns around the adequacy of income, the cost of necessities, lack of job availability and security as well as deterioration in expectations about meeting minimum debt payments and maintaining a standard of living in retirement,” he said.
The ME report found a worrying proportion of household concern around meeting debt obligations, with 65% of households reporting to have outstanding debt in June 2016 and 10% of that group anticipating they will be ‘unable to meet their required minimum debt payments’ in the next 6-12 months – a two-fold increase since December 2015 and highest proportion since the survey began in 2011.