Recent financial market turmoil has influenced 60% of Australian mortgage holders to create a bigger savings buffer for ‘unforeseen circumstances’, according to the 2011 Saving & Spending Insights Survey commissioned by Australia’s largest independently-owned mortgage broker, Mortgage Choice.
First homeowners felt the pressure most keenly, with 66% saving more for this purpose.
Investors were second most likely (63%), followed by next homebuyers (57%) and homebuyer/investors (56%).
Overall, 83% of the 1,009 mortgage holders surveyed over late August and early September said they had saved money in the past year, with the top reasons being for a holiday (53%), to repay their mortgage quicker (45%) and for unexpected changes to their finances (37%).
One quarter managed to put aside more than 20% of their after tax income.
Mortgage Choice spokesperson Kristy Sheppard said, “It’s uplifting to see that despite facing a hefty interest rate increase last November, rising living costs and a flood levy, the vast majority of Australians with a mortgage managed to save money over the past 12 months in addition to meeting their repayments.”
“Recent turbulence in financial markets is clearly influencing borrower attitudes to saving, but although they recognise the need to save for a rainy day, letting their hair down with some time away from work is even more important.”
Other key findings about mortgage holders
- 44% were paying more than 30% of the total after tax household income on their home loan.
- However, when these people were asked if they were in mortgage stress the most common response was ‘no’, (44%), followed by ‘yes, a little’ (38%), ‘yes, a lot’ (15%) and ‘unsure’ (3%).
- 34% did not know their interest rate, with first homeowners the most likely to not know (39%).
- 47% factor in an interest rate buffer of 1% or more into repayments. Next homeowners were by far the most likely to (56%), followed by homeowner/investors at 46% and investors at 45%.
- 6% store savings under the mattress or similar; 1% give savings to another for safekeeping.
- 26% said they had taken on significant debt in the past year.
- 40% were not bothered by slowing/falling housing price growth, 43% were a little and 12% a lot.
Delving further: Home loan saving
74% of savers had used at least some funds to put extra repayments directly into their home loan and/or to boost their offset account. The most common saving strategy was contributing as much as possible and redrawing when needed (30%), then putting in all possible and leaving it there (24%).
Despite being able to reduce the interest accruing on their mortgage by using extra funds in this way, well over one third of savers held some or all of that money in savings and/or term deposit accounts.
In response to a multi-answer question, 38% were using a high interest savings account, 23% a regular savings account and 10% a term deposit. 16% salary sacrificed extra super contributions.
Ms Sheppard said, “So many Australians with mortgages are possibly under-utilising their savings instead of using them to maneuver into a better financial position.”
“At least 38% are storing savings in facilities where the interest earned is taxable, rather than putting it in an offset account or directly into their home loan to offset interest accruing on it.”
“Say you’ve a 30-year $300,000 loan at 7% and you contribute $200 extra per month from five years in, you reduce the interest owed by over $75,000 and cut five years and two months off the term.”
Delving further: Home loan redraws
Only 33% of those paying more than necessary into their home loan had redrawn funds in the past year, with by far the most common incidence being redrawing only once or twice in that time.
The top reasons for making a redraw were:
- 1. Paying off credit card debt – 25%
- 2. Day to day living – 22%
- 3. Renovations – 22%
- 4. Holiday – 19%
- 5. Bills – 17%
Looking at the big differences between the types of property owners, first homeowners were by far more likely to pay bills with redrawn funds, at 26% compared to 16% of investors, 13% of next homeowners and 13% of homeowner/investors. Investors led the pack by a long way with using redraws to pay off credit card debt, at 39%, compared to 28% of first homeowners, 25% of homeowner/investors and 17% of next homebuyers.
Delving further: Significant debt
Of the 26% who had taken on what they saw as ‘significant debt’ in the past year, apart from the 36% who spent up on a property purchase, the top five reasons for expenditure closely matched redraws:
- 1. Vehicle purchase – 20%
- 2. Renovations – 19%
- 3. Day to day living – 17%
- 4. Holiday – 9%
- 5. Bills – 8%
Of these top categories, first homeowners were most likely to have bought a vehicle (33%) and used the funds for bills (15%). Next homebuyers were most likely to have spent up on renovations (25%), a holiday (13%) and day to day living (32%). Homeowner/investors only held the top spot for property (60%) while investors didn’t rank first for any, though they ran a close second with holidays (12%).
Delving further: Interest rates influence on refinancing
If interest rates fall in the coming months, 36% said they will be more likely to explore refinancing. 41% won’t because they are content with their current interest rate, 9% are in a fixed rate loan and don’t want to break it and 14% simply can’t be bothered looking into it.
Of those more likely to explore the possibilities upon rates falling, if they did refinance:
- 19% would switch from their current variable rate to a lower variable rate
- 7% would switch from variable to fixed
- 4% would switch from variable to a split of fixed and variable
- 2% would break their fixed rate term and switch to a lower fixed rate
- 2% would break their fixed rate term and switch to a variable rate
- 1% would break their fixed rate term and switch to a split of fixed and variable
Those most interested in refinancing if rates fall were next homeowners (67%), followed by first homebuyers (65%), homeowners/investors (61%) and investors (53%).
Delving further: The banking war & switching lenders
74% were aware of the recent fierce competition between lenders seeking new business by offering mortgage switching and other incentives to borrowers. Of those who were oblivious to this, 45% said that being made aware encouraged them to switch their mortgage and/or lender by the end of 2011.Of those who were aware of the rise in competition, home owner/investors were most likely to know about it, at 81%. Next homebuyers followed (74%), then investors (71%) and first homebuyers (68%).
“It’s not surprising one quarter of Australian mortgage holders aren’t aware of the changing market dynamics and lender competition moving in their favour, but it is disappointing,” Ms Sheppard said.
“Unfortunately a large proportion of property owners have no idea they could possibly save money or change to a more suitable home loan by taking advantage of special offers and/or re-negotiating their mortgage situation. There are plenty of switching incentives and rate discounts on offer at the moment, and lenders’ retention departments are operating in full swing.”
Of the 45% of respondents who said they were aware of improved competition and it had encouraged them to switch lender or product, only 6% plan to refinance by the end of 2011, while 30% will do so in the future. 5% had already refinanced in the past year and 4% had done so more than one year ago.
Source: Mortgage Choice
Subscribe & don’t miss a single episode of michael yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to michael yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.