An increasing number of households expect their financial comfort to worsen, a new report from ME reveals
An increasing number of households expect their financial comfort to worsen, a new report from ME reveals
As the cost of necessities rise, income gains remain weak and potentially higher mortgage rates loom, more households are experiencing financial stress, according to ME’s latest Household Financial Comfort Report.
Although ME’s overall household financial comfort index increased 2% to 5.51 out of 10 in the six months to June 2017, the 12th biannual report found that a growing number of households expect their financial comfort to worsen.
This is the third consecutive Report where future expectations have fallen, down 4% over 18 months.
ME Consulting economist and Report co-author, Jeff Oughton, said “on the surface the financial comfort of the average Australian looks good, but it’s fragile – susceptible to housing stress and energy cost shocks.
“Overall financial comfort rose most notably due to 3% rises in comfort with savings, income, and investments, reflecting some improvements in the labour market, rising house values and investments.
“But the cost of necessities remains the biggest concern for Australians and when combined with stagnating or falling income for up to nearly 70% of households, expected further rises in the cost of necessities like power prices, as well as rises in mortgage rates, the future doesn’t look as bright for some.”
Two top worries
Two key areas are of most concern for Australian households, with the first being cost of necessities followed by potential interest rate rises.
1. Cost of necessities
For those households who experienced a worsening of their financial situation in the six months to June 2017, almost 40% said it was due to the cost of necessities.
“While retail inflation is low, in general, hikes in the cost of necessities such as fuel, household gas and electricity are the biggest worry for over 40% of households,” said Oughton.
“The Report finds households have been hit with bill shock in the first half of 2017 and are anticipating more to come. This is unsurprising given the much publicised energy price hikes from July 1.”
2. Forecast interest rate rises
Particularly for mortgage holders, and with the hike in interest rates over the past six months, concern around future interest rate rises is adding to households’ future pessimism, the report found.
A third (31%) of households expect to be worse off financially if the RBA raises the official cash rate by 1% from its record low of 1.5%, including half (47%) of those with a mortgage, while only 7% with high comfort levels (typically high income and/or wealthy Australians) expect to be worse off.
On average, mortgaged households are paying over a third of their post-tax income on their repayments, including 15% paying more than a half and 48% paying more than 30% of their post-tax income.
“Speculation the RBA will lift the cash rate is causing households concern as it will impact monthly cash flows, ability to pay off debts, save and spend. Gen Xers (41%), single parents (36%), and to a lesser degree, couples with young children (35%), expressed the most concern about potential rate rises,” said Oughton.
“This will continue to be an important factor in household financial comfort, especially since the RBA has marked 3.5% as the new norm for the neutral cash rate – well above the current actual cash rate.”
As the cost of necessities rise, income gains remain weak and potentially higher mortgage rates loom, more households are experiencing financial stress, according to ME’s latest Household Financial Comfort Report.
Although ME’s overall household financial comfort index increased 2% to 5.51 out of 10 in the six months to June 2017, the 12th biannual report found that a growing number of households expect their financial comfort to worsen.
This is the third consecutive Report where future expectations have fallen, down 4% over 18 months.
ME Consulting economist and Report co-author, Jeff Oughton, said “on the surface the financial comfort of the average Australian looks good, but it’s fragile – susceptible to housing stress and energy cost shocks.
“Overall financial comfort rose most notably due to 3% rises in comfort with savings, income, and investments, reflecting some improvements in the labour market, rising house values and investments.
“But the cost of necessities remains the biggest concern for Australians and when combined with stagnating or falling income for up to nearly 70% of households, expected further rises in the cost of necessities like power prices, as well as rises in mortgage rates, the future doesn’t look as bright for some.”
Two top worries
Two key areas are of most concern for Australian households, with the first being cost of necessities followed by potential interest rate rises.
1. Cost of necessities
For those households who experienced a worsening of their financial situation in the six months to June 2017, almost 40% said it was due to the cost of necessities.
“While retail inflation is low, in general, hikes in the cost of necessities such as fuel, household gas and electricity are the biggest worry for over 40% of households,” said Oughton.
“The Report finds households have been hit with bill shock in the first half of 2017 and are anticipating more to come. This is unsurprising given the much publicised energy price hikes from July 1.”
2. Forecast interest rate rises
Particularly for mortgage holders, and with the hike in interest rates over the past six months, concern around future interest rate rises is adding to households’ future pessimism, the report found.
A third (31%) of households expect to be worse off financially if the RBA raises the official cash rate by 1% from its record low of 1.5%, including half (47%) of those with a mortgage, while only 7% with high comfort levels (typically high income and/or wealthy Australians) expect to be worse off.
On average, mortgaged households are paying over a third of their post-tax income on their repayments, including 15% paying more than a half and 48% paying more than 30% of their post-tax income.
“Speculation the RBA will lift the cash rate is causing households concern as it will impact monthly cash flows, ability to pay off debts, save and spend. Gen Xers (41%), single parents (36%), and to a lesser degree, couples with young children (35%), expressed the most concern about potential rate rises,” said Oughton.
“This will continue to be an important factor in household financial comfort, especially since the RBA has marked 3.5% as the new norm for the neutral cash rate – well above the current actual cash rate.”
