Households expect financial comfort to worsen

The rising cost of necessities, low wage growth, and the potential for future mortgage rate hikes are creating financial stress in many Aussie households, according to ME Bank’s 12th biannual Household Financial Comfort Report.

The report, which was based on a survey of 1,500 Australians conducted by DBM Consultants, found that while household financial comfort rose 4% for Sydney and Brisbane residents in the first six months of this year, residents of other cities reported only modest changes in their financial comfort.

In fact, a growing number of households expect their financial comfort to worsen.

“On the surface the financial comfort of the average Australian looks good, but it’s fragile – susceptible to housing stress and energy cost shocks,” said Jeff Oughton, ME consulting economist and co-author of the report.  

“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,” Oughton said. “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.”

At the end of each month, about half of Australians have no spare cash left, with 51% typically spending all of their income or more. Moreover, of those households whose financial situation deteriorated from the start of this year to June, nearly 40% said the cost of necessities was the primary reason.

Almost one-third of households (31%) expect to be financially worse off if the Reserve Bank lifts the official cash rate by one percentage point. The report found that on average, a household with a mortgage is paying more than one-third of its after-tax income on mortgage repayments. It also found that 15% of mortgaged households are setting aside more than half of their post-tax income on mortgage costs.