Beat “mortgage stress” and keep your home.
by Neil Jenman
Reading time: Apx 7 mins
Selling a family home is one of the most stressful events in life. The stress compounds if the reason for selling is another stressful event.
Such as financial stress.
After nine straight rate increases, thousands of home-owners are in financial stress. Or “mortgage stress” as it’s called. That’s when monthly payments exceed a third of a family’s income.
Here’s the stark truth: The average home loan in Australia is now around $700,000. The average family income is around $115,000. So, the average family with an average loan pays a whopping 42 per cent of their income in repayments. In any language and in any family, that’s stressful.
And more stress is coming – as the Reserve Bank tells us. We can expect rise number 10 in March, number 11 in April – and so on. Who knows where it will stop?
In early 2021, the RBA chief said no rate increases were likely until at least 2024. He was like a Great War captain blowing a charge whistle. Thousands of home-buyers leapt forth only to be financially mowed-down by mortgage stress.
MORTGAGE STRESS FOLLOWED BY NEGATIVE EQUITY?
With so many families now paying about a thousand dollars a month more than a year ago and with predictions that a falling property market will fall further, a new phrase may soon follow the phrase “mortgage stress”. It’s called “negative equity”.
Many home-owners may have a mortgage above the value of their home. Many families, unable to meet their monthly repayments, will struggle to sell. They won’t be able to cover the shortfall between their loan and their selling price.
Some families are now scrambling to sell their homes before prices drop too low. And some agents are encouraging them – gleefully (must keep those huge commissions flowing). Thankfully for them, some home-owners are realising that financial stress is just as bad, if not worse, in the rental market. Thousands of tenants now pay more than half their income in rent.
Given a choice between paying 40 per cent of your income for a home loan or 50 per cent on rent, most families will prefer the home loan. At least, as a home-owner you stand a chance of a future end to financial stress. Especially when the property market rises – as it has done for generations.
In the meantime, home-owners need to find a way to keep their homes, and, if possible, reduce their financial stress. While some sales trainers and plenty of agents are near salivating at the thought of thousands of financially distressed home-owners placing their homes for sale in the months ahead, most will be disappointed.
HOME-OWNERS WILL FIGHT
Australians are a nation of home-owners. We love our homes. And we can be fiercely resilient when it comes to the threat of losing our home. Even in the Great Depression more than 90 years ago, the foreclosure rates in Australia were among the world’s lowest. Sure, there were sad stories. But there were also plenty of heroic stories as home-owners did everything humanly possible to retain occupancy of their homes.
And besides, as banks then realised – and will be forced to realise again – it’s better to have the current occupier remain in the home than have a vacant home re-sold for less than the amount owed to the banks. Bankrupt borrowers are not profitable. Neither are homes sold below their mortgage payouts.
So, if you are stressed at your repayment and thinking of the future gives you sleepless nights, don’t consider selling your home. At least not as your first option. Make it your last.
In the meantime, fight to keep your home.
Remember how excited you were when you bought your home. Remember the first night in your home. It felt good, didn’t it. Australians love their homes.
So, before thinking of selling, think of ways to reduce your mortgage stress.
Here are a few suggestions. And sure, some may not suit you and, yes, others may be unpleasant. But surely nothing is more unpleasant than being tossed into the street. Fight to save your home. Just as the Anzacs fought for our country.
CONFRONT THE LENDERS
Yes, we all know it. Big banks have low morals. Their unethical behaviour will become their eternal shame. Profit comes first.
When the RBA was lowering rates, none of the banks passed on all the rate cuts in full. Some never passed on any cuts. Or, they waited weeks, even months, to ease the pain for their borrowers.
But banks pass on all rises to borrowers – usually within hours of the RBA’s announcements. Banks making billions in profits out of exploiting customers.
Only one thing comes close to the banks lust for profit – their image, at least on a personal basis. No bank wants to be seen throwing an individual family on to the street. Which means, quite simply, if you contact them and explain that you are struggling with your repayments, most will come to “an arrangement” for you.
Now, granted, no bank is going to erase or lower their ultimate profit. The best you can hope for is a delay paying the increased amount. It will be “stored” for later.
There will be a day of reckoning.
But, by then, your financial situation should have improved. Plus, of course, your home will likely have increased (perhaps soared) in value. At least your family can still enjoy the security and warmth that accompanies home ownership.
CONFRONT YOUR EMPLOYER
When’s the last time you got a pay rise? What about a bonus?
Do you do a good job? Are you a valuable employee? Then the chances are almost certain that you deserve a pay rise – not too much. You don’t need to be greedy. Just an increase to match the increase you now have to pay your lender. You’re not out to make a profit, just to cover your increased costs – each time they increase.
So, pass on your increased loan payment by charging your employer an increased salary. At the very least, you can ask.
As salespeople say: “If you don’t ask, the answer is always no.” Ask for a pay rise.
Better still, negotiate. Ask for an extra thousand dollars a month and then settle for $800.
These days, most people have far too much “stuff”. They buy homes with storerooms so they can store “stuff” they never use. When they run out of storage space, they buy bigger homes. To store more stuff.
Or they hire a storage unit – for several hundred dollars a month – to store more stuff they never use.
Some people – thousands, actually – have been paying for “stuff” in storage for years. Yes, years.
What are you doing? It’s nuts. Or is it greed? Are you such a hoarder that you cannot part with possessions you never use?
Not only will you get extra income, if you rent a storage unit you won’t throw away thousands of dollars to store needless stuff.
Do you know what happens to people who spend a lifetime collecting “stuff”?
They end up with stuff-all.
TAKE A PART-TIME JOB
Employers are screaming for part-time workers. It’s hard to find casual staff. Some employers are so keen, they allow part-time employees to work from home – a legacy of the pandemic.
So, go on, at least have a think about it. At least check-out what’s on offer.
At Jenman Support, we have a lovely married mum with four children on a part-time basis. She calls people and verifies details and requests. Her name is Jess. Today is her first day. She lives almost two thousand kilometres away from our Sydney office.
There are plenty of part-time jobs on offer. Like what, you may ask? If you exercise – or if you should exercise – and you walk a few kilometres each day, why not deliver flyers in your local neighbourhood.
Most businesses that deliver letterbox flyers (oh alright, “junk mail”) are over-charged or ripped-off by distributors. You can offer a better rate and do a better job. It will be like being paid to exercise each day.
RENT A ROOM
There’s a housing crisis.
In many areas, there are dozens of applicants for each rental property.
Thousands of people – good, decent and clean-living – are eager to rent that spare room (or two) in your home. You don’t have to do what unscrupulous owners are doing – and rip them off. You can set down your conditions (yes “rules”) under which someone rents a room in your home. If you screen them well, most will likely behave better than those poor owners whose “entitled” children still live at home – often paying nothing. Don’t be “used” – well, not entirely.
Start using your spare room to bring in some spare cash.
A fair rate for a clean room in a family home in a capital city would between $250 a week (for say, Brisbane, Adelaide, Canberra and Perth) and $320 a week (for Sydney and Melbourne).
There are around six million empty bedrooms in our nation’s home. With a home loan, you are paying for each room in your home – whether you use it or not. How so? Well, a four-bedroom home is more valuable than a three-bedder.
Given that you, as the owner, can only occupy one room, who’s in the others? Someone else? Well, ask them to pay up. Explain how you need the money for the increased loan payment.
If no one lives in your spare room, find someone – and rent it out.
Okay, maybe living in a “name” suburb or a certain “part” of a posh suburb did have something to do with your ego. It seemed cool to impress your friends – but not if it now stresses the heck out of you.
And besides, when you pull the blankets over your head and snuggle up to the one you love – even if it’s a canine or a feline – who cares about “prestige” of location.
So, rather than lose your home completely and join those who resemble refugees in the rental market – many of whom are treated appallingly by agents and landlords, sell your home in the posh area and move to a more affordable area – for you.
And don’t buy such a flash home.
Even consider moving to a regional area. At least do some research.
The lifestyle is often better, the air is cleaner and the housing, well, it’s as low as a quarter of some city suburbs. Recently, I met a lady from America. She bought a lovely home for $80,000 in a quaint country town, 20 minutes from a regional city.
And get this, she originally wanted to live on Queensland’s Sunshine Coast – where it costs as much for the stamp duty on some homes as it does for the price she paid for her home.
I asked if she was happy. Deliriously so. A lovely home with a small loan tends to increase your happiness.
Financial stress is awful. Many years ago, I went to Cairo in Egypt. Around a million poor people lived in the main cemetery.
The living had an enormous shanty town among the dead.
I hired a guide called Hosni – and, having learned a smattering of Arabic – I spent three days mixing with some of the world’s poorest people.
It was an experience that changed my life. So many – make that most – of the people, especially the children – were pleased to see me. They whooped with glee when this [then] blonde-haired and blue-eyed boy said a few words in Arabic.
It was there, among the poor, that I learned one of the greatest lessons in life: It’s not poverty that causes misery, it’s debt.
If you’re suffering from mortgage stress, selling (losing) your home should be your absolute last resort. You love owning your own home – and the debt will one day be gone. It’s so much better than renting, emotionally that is.
Our homes tug at our emotions like nothing else.
Indeed, home is the second most emotive word in any language. The first is “mother”. You wouldn’t sell your mother – not at any price. So perhaps you should think the same about your family home – don’t sell it. Fight to keep it.
Note: If this article has not eased your concerns about mortgage stress and you are still unsure about your future, you are welcome to contact us at Jenman Support. We will never charge you. We will never ask you to sign anything. We will always focus on the best outcome for you and your family.