ME Bank report: Homeowners more comfortable, but how about renters?

It may come as a surprise given the ongoing impact of the COVID-19 pandemic, but financial comfort levels among Australian households have just hit a record high according to ME Bank’s latest Household Financial Comfort Report.

Drawing upon the results of a survey of 1,500 Australian households conducted in December, the report revealed that sentiment towards areas such as ‘cash savings’, ‘investing’ and the ‘ability to cope with a financial emergency’ all increased the most in the second half of 2020.

As a result, ME’s household comfort index hit 5.89 out of 10 - the highest it's been in 19 surveys conducted since 2011.

This is the second time the bank has conducted a pulse check since the pandemic began, with ME Bank’s consulting economist, Jeff Oughton, attributing the new high to a resilience among households and the measures many have taken to reorganise their finances.

“Households have increased cash savings, cut overspending, paid down debts, and withdrawn retirement savings to improve their ability to handle the emergency,” he says.

“This precautionary behaviour supported by the sizeable temporary government income support and very accommodative banking and financial conditions has no doubt helped drive financial comfort to a new record high in December.”

However, Oughton expects that this trend will start to reverse in coming months.

“Despite households reporting a record high in financial comfort at the end of 2020, underlying economic and financial drivers indicate that this peak may be temporary and potentially quashed in 2021.

“A decline in household financial comfort is likely to play out over the next six months as government support – especially JobKeeper and JobSeeker − is phased out. Australia’s labour market also remains weak, with many workers reporting very high underemployment together with increased expected difficulty in finding a job and subdued wage gains, if any.”

Record mortgage comfort continues

As part of its research, ME delved down into the comfort levels associated with housing costs among three groups: homeowners without a mortgage, owners with a mortgage and renters.

Continuing past trends, outright owners once again reported the highest level of financial comfort out of the three groups with a score of 6.77 out of 10, while the scores for mortgage holders (5.63) and renters (4.95) remained relatively stable.

Despite that, comfort levels among mortgage holders actually remain at record highs, with historically low mortgage rates and, to a lesser extent, lender assistance in the form of mortgage holidays likely helping boost confidence.

“We’ve got people with a higher level of savings, a property market which is turning and interest rates which are likely to remain low for the foreseeable future - all of which are factors helping increase optimism among mortgage holders,” says Oughton.

Perhaps unsurprising, low interest rates also appear to be easing ‘mortgage stress’, as ME found that households are paying a lower proportion of their disposable income towards their mortgage payments than they were previously.

Roughly 4 in 10 households with a home loan (38%) reported that they were putting over 30% of their income towards their repayments in December 2020 - a decrease from 42% in June 2020.

Income-to-rent ratio remains high, despite drop

While rent prices have fallen in many parts of the country due to increased vacancy rates, renters continue to remain worse off compared to mortgage holders - at least, in terms of the proportion of disposable income they’re putting towards rent.

ME Bank’s research revealed that a considerable 1 in 5 renting households (21%) pay over 50% of their disposable income towards rent, though that’s actually a decrease on the 26% figure recorded in June 2020.

Meanwhile, around 3 in 5 renting households (59%) were found to be putting over 30% of their income towards rent which, again, is lower than the June 2020 figure of 65%.

“Traditionally people have talked about paying anything more than 30% of your income as putting you in a position of rent or mortgage stress, but as the research shows, plenty of people are paying that or more,” says Oughton.

“A lot of renters not only have lower incomes, but restrained incomes - so they may be reliant on government assistance like a single parent benefit or the age pension. Unfortunately, this can put people in this position of a permanent form of rental stress.”

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For more information and figurers, check out the March 2021 edition of the ME Bank Household Financial Comfort Report.