Todd’s Crystal Ball

 I wanted to put a video together and I apologize in advance, it’s a bit of a grim natured one.

We’re going to be talking about mortgage stress and there’s a new report that has come out, from Martin North and he actually runs a business called Digital Finance Analytics and basically what they do is they go through and analyze all of Australia, talk about mortgages and they do all of the data to work out where mortgage stress lies and the report is actually quite disturbing.

I’ve touched on a few times from this guy before; some of his reports, but it’s actually looking really really bad right now, so this is sort of a pretty nice way to say this, this is a warning for those who are starting to feel a little bit of financial stress but let me go into it.

The report goes into where we are right now with interest rates, okay, so they’re not at their all-time lowest but they are really low and have been getting for quite a while, and albeit, they’re scared to pull them up in fear of increasing mortgage stress understandably but the reality is at some stage it’s going to happen so– but as we stand right now on average this is saying that one in four households that have mortgages against the home, are in mortgage stress, so twenty five percent. So that’s really high given that our interest rates are really low and we could put down to sort of partially blaming the banks for allowing us to borrow that money but, at the end of the day, it’s the consumer who says that they want the lavish house, the lavish car, they remortgage themselves, they buy investment properties, they put a pool in the back, they put the car loan into the home loan, and so, for those people who are doing that, there’s a bit of common sense that’s going to come with this and it’s a bit of their own stupidity. Yeah, and there should be better guidance from the banks in relation to this but at the end of the day you investing your money comes down to you and you only.

So one in four, they’re talking about if interest rates go up half a percent, now we’re only talking half a percent, and if you notice the other day, Westpac has put theirs right up, I think it went up point one four, so almost half of that, but if it goes up by that half a percent they’re talking about that one in four ratio, now becoming in one in three. It’s increased quite dramatically, it’s gone from basically twenty five percent to thirty three percent of people in stress so that’s quite disturbing that that increase is so dramatic of nearly half a percent of an interest rate rise.

Now take that number up to one percent and it just goes out of control. That number basically goes to eighty percent of all households in Australia going to be in mortgage stress, eighty percent. So, we create that half and put another half on top, it’s gone from thirty-three to eighty percent, Very very very scary. Now, I’m not here to doom and gloom it all, I’ve been talking about this for a while, I’ve written blogs about this where I’ve said, actually I’ve said five and a half percent – six and a half percent is the new nine percent. I wrote a blog a while ago about it and I wrote another one after that saying I think five and a half percent is now the new six and a half and basically meaning that nine percent before the G.F.C., we had quite a lot of mortgage stress, but now with the way that the lending criteria changed, with the cost of living going up and wages haven’t increased by that number, over a couple of years, probably two and a half years ago, it came back down to six and a half percent and roughly probably twelve, eight months ago,

Now what that means is, if you say look I need to sell high, I can’t handle this mortgage and the stress that comes with it or I need to sell an investment property or two, that I’ve got around the country because I cannot afford the repayments, the problem that you’ve got is that you’ve left it too late now and now there’s a big pool of other investors out there doing exactly the same thing which then floods the market. This puts too many houses on the market and then when you got too many houses on the market basically that states, well prices come down as we all know.

So, it becomes a buyers’ market, and there’s not as many buyers out there either, so there will be people waiting for the absolute bargains, that will pick up these deals and that will be there but they’re going to be very very picky about what they buy, a bit like how I invest so that’s how I like to do it.

But they’re going to be very limited in what they will buy and picky, and they’ll give you the run around and you’re going to have to be dropping your price consistently, which means that you may get to a point where you just don’t have the equity in the property to be able to drop it any further, without the banks consent and then when you’re in that predicament there’s no way to go. There’s nowhere to go except to a moving position. 

So, I urge you all– if you’re thinking that this is a position that you may be in or you’re thinking that you’re already tight right now and you’re tightening the belt already, well you need to be seriously looking into the future to see whether if you need to make some arrangements and change your lifestyle or sell properties. The time to act on your finances is now, only you can make those changes..