However, over half of home owners have never stress tested their loan
Aussie homeowners scored 56 out of 100 compared to renters who got an average score of 44 in a new national study measuring “financial consciousness”.
The Financial Consciousness Index (FCI) tested the belief of 3,000 individuals on their ability to control their financial outcomes, and willingness and sophistication to improve their financial wellbeing.
Having a home, owned or not, is a major contributing factor that influences a person’s FCI score, along with age, gender, location, and education. Home owners naturally tend to take more interest in their financial position, on interest rate changes, and other macroeconomic index.
However, despite scoring more positively than renters overall, home owners assume that property prices will continue to rise. According to the study, 73% of the respondents believe their home’s value will remain or increase next year; while 70% believe their home retained or increased its value compared to last year.
“Property prices are not something you can presume will always appreciate. Like all investments, the property market demonstrates a cyclical pattern with stagnation following a period of growth,” Comparethemarket.com.au general manager of banking Rod Attrill said in a statement.
“It is a worrying time for many homeowners, with low interest rates and a sustained period of rising property prices pushing personal debt to record highs. Although the cash rate still remains unchanged, there are obvious signs that the market is turning and we’re seeing out-of-cycle rate increases by major and non-major banks alike. Interest rises should be a reminder for consumers to compare home loans to see if they can get a better deal.”
The report reveals that Aussies are confused when it comes to the cash rate, with over 68% of home owners having never or not knowing if they have subjected their loan to a stress test. This will likely cause financial stress to those unprepared for changes in their mortgage payments. One out of ten respondents said they would spend their mortgage or take a loan if they suddenly lost work.
According to Attrill, 54% of Aussies rarely or never monitor cash rates, and 24% are not aware of the RBA cash rate announcement. “This dearth in financial literacy and a general lack of engagement with other key financial indicators is concerning given its potential for broader economic implications to the nation’s financial health,” he said.
The report also revealed that 27% of Aussies are certain they’re not getting the best deal on their home loan. This belief is primarily held by 48% of those making $70,001 to $100,000, who admitted that although they feel that way, they haven’t shopped around for a better deal.
Trust is an issue, too. Financial institutions responsible for funding millions of residential properties across the county have lost the confidence of 42% of consumers, who said “they have little to no trust in retail banks and insurance companies”.
“Consumers run the risk of not getting the best deal on their mortgage due to decision paralysis. The study reveals that many people aren’t making a change to improve their household budgets out of fear of making the wrong decision,” Attrill said.
The Index was commissioned by Comparemarket.com.au and developed by Deloitte Access Economics.
