Mortgage stress eases in the city but future rate rises will impact the fringe households

The latest Census data shows mortgage stress has eased, but of course even a small interest rate rise will send many households, and even the economy, back onto struggle street.

The national research by the Grattan Institute showed highly indebted households were clustered on the fringes of capital cities rather than in the wealthiest suburbs of the inner ring.

Sydney suburbs under mortgage stress included Preston, Hoxton Park, Carnes Hill, West Hoxton, Middleton Grange, Hinchinbrook and Chullora.

The suburbs deemed as not under mortgage stress included North Bondi, Tamarama, Bronte, Double Bay, Bellevue Hill, Sydney, Haymarket, The Rocks, Balmain, Newtown, Camperdown and Darlington.

Mortgage stress was defined as spending 30 per cent or more of household income on home loan repayments.

"In 2011, about 10 per cent of households had mortgage stress. Today it's only 7 per cent," Grattan Institute chief executive John Daley said.

"What the census data shows is that the areas of high stress are a little further out from the metropolitan areas in 2016 than in 2011 because new housing estates are further out," Mr Daley noted.

Although the outer ring house prices are cheaper, incomes are likely lower and loan-to-value ratios are higher because more people have actually only just purchased a property.

Our overall low interest rates have made it easier for most households to meet mortgage repayments.

"If interest rates went up 2 percentage points, which is possible, stress levels would be the highest on record apart from the squeeze in 1989, which scarred a generation of home-owners," John Daley said. 

The Reserve Bank of Australia's recent data on household debt show it stood at 190 per cent of annualised disposable incomes confirming Australia has one of the world's highest private debt burdens.

Treasurer Scott Morrison has acknowledged this private debt load.

It was a reason the government supported moves by the Australian Prudential Regulation Authority and Reserve Bank's to further crackdown on interest-only lending especially for home buyers. 

The regulatory response has helped slow price growth in Sydney which was rising at an annual pace of almost 20 per cent in late 2016. It is now down to 12 percent annual growth according to CoreLogic.

The systemic risk of people not being able to repay their home loans appears small. 

In fact the proportion of people who have very high exposure to a fall in house prices – with loan to valuation ratios above 90 percent – has been in decline. 

The basic picture is one of prudent households, rather than a community of people gambling on house price rises, Rodney Maddock, Adjunct Professor of Economics, Monash University said recently.

None of this is to deny that house prices can fall, and that interest rates will rise, but somehow most of us will find a way to endure any challenging landscape.

This article first appeared in the Daily Telegraph.