Survey finds Australian borrowers could not make home loan repayments if they fell seriously ill

April 29, 2017

Survey finds Australian borrowers could not make home loan repayments if they fell seriously ill.

NEARLY half of Australian mortgages are worried about what being diagnosed with a serious illness would mean for their repayments, with some claiming to be incapable of servicing their home loans for even one month if they became seriously ill, new research has found.

A survey of 1000 Australian adults commissioned by ALI Group- a provider of loan protection products- found that 46 per cent of people feared mortgage stress or potential default as a result of a serious diagnosis in the future. One in five ranked a serious illness as their number one concern. The hiking of variable rates by major banks independently of the RBA in recent weeks had further unsettled their nerves.

Homeowners appear stretched to their limits, despite low-interest rates, with 12 per cent claiming they could not make home loan repayments even for a month if unable to work due to illness. A further 30 per cent could not service their mortgage for more than two months, while 44 percent could make it to three months before coming into trouble.

“The reality is that many Australians are living pay cheque to pay cheque, which is echoed in this research,” ALI Group CEO Huy Truong said. “With high mortgage levels, homebuyers need to be aware of their financial vulnerability.”

Cancer was the illness most feared for 35 percent of women and 31 percent of men. Northern Territory respondents were the most fearful of cancer at 45 percent, while Western Australia and New South Wales were both next at 38 percent. At the other end of the scale, the ACT (24 per cent) was least worried about cancer, while Queenslanders (25 per cent) and Tasmanians (26 percent) were next. South Australians (35 per cent) and Victorians (31 percent) were in the middle.

It was a distant gap between cancer and the next most feared diagnoses, a heart attack (9 percent nationally) and a stroke (4 percent).

“Australians seem less concerned about a heart attack, despite one Australian suffering a heart attack every 10 minutes,” Mr. Truong said. “We are surviving cancer more because of early detection and treatment, and we should be able to focus on recovering, not adding unnecessary stress to our bodies by worrying about losing our homes.”

Buoyant real estate markets in a number of Australian cities — especially Sydney and Melbourne — have contributed to heightened stress around mortgages with some buyers stretching the budget significantly to get a foot in the door and resorting to desperate measures like taking out interest only home loans, hoping for some breathing space.

The problem is being taken seriously by the Australian Prudential Regulation Authority (APRA), which recently advised lenders to cap interest only lending to 30 percent of new residential mortgages.

Zac Peteh, director at mortgage broker Mint Equity, said rising household prices and debt, combined with subdued income growth and low-interest rates had led to a heightened risk environment.

“APRA intervenes when they start feeling uncomfortable with the lending market,” Mr. Peteh said. “Borrowers need to be smart about where they source their home loan from.”


(source: perth now)

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