On Tuesday, the Albanese government struck a deal with the Greens to allow sweeping changes to negative gearing and the capital gains tax discount to pass parliament.
The government has consistently asserted it is sharply focused on helping more Australians into home ownership. Key actions have included expanding the 5% deposit scheme and other government assistance programs, and overhauling housing tax concessions in this year’s budget.
But at the same time as we try to help more people get a foot on the property ladder, are we forgetting to pay attention to what it’s like for those who do?
This week, new research from Roy Morgan showed 29% of Australian mortgage holders (equivalent to about 1.54 million people) were “at risk” of mortgage stress, an increase of 65,000 compared to a month earlier. This follows a string of rate hikes from the Reserve Bank.
Roy Morgan says more than two-thirds of this group are considered “extremely at risk” of mortgage stress, meaning even meeting the interest payments on a mortgage costs more than 25–45% of their after-tax income.
Many recent homebuyers have been hit with an undesirable trifecta of high purchase prices, high loan-to-value ratios and rising interest rates.
Now, with auction clearance rates plummeting and house prices projected to fall around the country, there are concerns some recent homebuyers could even face “negative equity” – owing more to the bank than a property is worth.
From a policy perspective, Australia’s “home ownership society” has always been heavily backed by mortgage indebtedness and the risk of mortgage stress. As we race to get more people into home ownership, we mustn’t overlook the threat this poses to Australians’ mental health.
The psychological costs of climbing the property ladder
While there isn’t a universal definition, “mortgage stress” is commonly defined as a situation in which a household is spending more than 30% of its income on servicing a mortgage.
Research has long provided ample evidence mortgage stress is linked to poorer mental health.
Research examining the aftermath of the global financial crisis in 2008 found homeowners who were unable to meet their mortgage loan repayments were more likely to have depression than those able to meet their mortgage commitments.
Mortgage foreclosures have also been systematically linked to poorer mental health.
This phenomenon isn’t unique to Australia. Research has found a consistent link between mortgage indebtedness and psychological distress across many countries, including the United States, Canada, the United Kingdom and Japan.
Joel Carrett/AAP
Income and gender differences
For lower-income groups, housing affordability burdens lead to worse mental health outcomes than higher-income groups. But those on higher incomes are not immune.
Research, including from Australia and the US, suggests women tend to experience higher psychological stress from debt than men.
Women generally have lower levels of non-housing wealth and greater sole parenting and other caregiving responsibilities. These factors can reduce their capacity to psychologically absorb mortgage burdens.
Approaching retirement with a mortgage debt
Obviously, having a mortgage is not the same as owning a home outright. As you might expect, outright ownership delivers a wellbeing premium through improved mental health and better life and financial satisfaction.
Yet Australian research has shown despite being in debt, mortgaged owners under 50 are still more financially satisfied than renters. However, for those carrying a mortgage debt past 50, financial satisfaction falls back to the same level as renters.
This reflects the financial stress of carrying mortgage repayments into later life, as more and more Australians approach retirement with a mortgage debt.
For those experiencing mortgage stress, rising interest rates have clear adverse impacts on wellbeing. Since the start of this year, more than 82,000 Australians have contacted the National Debt Helpline, with mortgage stress consistently among the top reasons.
Strategies for navigating mortgage stress
There are some practical strategies for homeowners to cope with mortgage stress.
There may also be the possibility to adjust loan conditions by refinancing, or contacting lenders early to discuss hardship arrangements.
Read more:
What are your options if you can’t afford to repay your mortgage?
Not a one-way street
The link between mortgage stress and mental health is not a one-way street.
It is true mortgage stress can negatively impact mental health. But mental health also affects financial resilience. Poor mental health can hinder one’s ability to sustain employment, manage finances or seek support.
Other strategies that purely target good mental health, such as being physically active and remaining socially engaged, can also help navigate periods of mortgage stress.
How governments can help
Governments can help homeowners in mortgage stress through temporary mortgage relief programs.
However, Australian households are among the most highly indebted in the OECD, and the majority of this debt is in housing. So a longer-term measure is for policymakers to help future homebuyers reduce reliance on mortgage debt.
For instance, programs like shared equity can help lower-income households become homeowners at lower debt levels.
