A new report has found that the residents of south-west Sydney suffer the worst mortgage stress in the nation.
The report by the global ratings agency Moody's says the further borrowers live from city centres the more like they are to have mortgage stress.
It found the worst performing areas included Campbelltown, Minto, Liverpool and Fairfield which are all in Sydney's south-west.
In these places nearly 3 per cent of mortgage holders have failed to make at least one repayment.
Michael Edwards has this report.
MICHAEL EDWARDS: As a financial counsellor for Mission Australia based in Campbelltown in south-west Sydney John Sexton says it's not a good sign for the rest of the community if his business is booming.
JOHN SEXTON: I'm seeing personally probably 10 to 12 clients a week at the Campbelltown office. With that we've probably seen an increase from one in eight of our clients having mortgages to probably one in three having mortgages now and being under mortgage stress.
MICHAEL EDWARDS: That sounds like a fairly alarming rise.
JOHN SEXTON: It is. And it relates to a big part of it is the financial literacy problem within the south-west of Sydney.
MICHAEL EDWARDS: When you talk about financial literacy what do you exactly mean?
JOHN SEXTON: A lot of people don't understand when they get, particularly when they get a home loan that most financial institutions will automatically give them credit cards or will give them interest free loan deals to get furniture or things like that.
And so they go out and get those credit cards or the interest free deals. But they haven't actually sat down and done a budget or a personal money plan to see that they can afford to make the repayments of everything.
MICHAEL EDWARDS: John Sexton's observations of mortgage stress in south-west Sydney come straight from the coalface of the problem. And they're also backed up by economic research.
The ratings agency Moody's has just released a report indicating south-west Sydney has the worst rate of mortgage stress in the country.
Here between 2.5 to almost 3 per cent of borrowers have defaulted on at least one repayment.
In the Fairfield-Liverpool district mortgage delinquency numbers are double the national average.
John Sexton says more effort should be put in to better educating people about what they're getting into when they take out mortgage products.
JOHN SEXTON: That is a big part of the problem. But also part of the problem for south-west Sydney is that most of our mortgages are set up on a couple, two people's incomes where when one of those, either through having children or they lose their job, they're down to one or one and a half incomes.
So therefore they can't afford the original mortgage, let alone the credit card debts or the interest free loans.
MICHAEL EDWARDS: Do you think that financial institutions are giving too many loans on this basis?
JOHN SEXTON: I think personally before the new credit code came in in July that it was that they were giving too many of those loans without checking whether the people could properly finance it.
MICHAEL EDWARDS: Economist Saul Eslake from the Grattan Institute says south-west Sydney has always been a region susceptible to mortgage stress.
SAUL ESLAKE: Well I think this was a phenomenon that was observed in the years leading up to the financial crisis. Western Sydney was one of the regions experiencing the greatest degree of mortgage stress as interest rates on mortgages rose to over 9.5 per cent back then.
And among the reasons for that were the stagnation of incomes in Western Sydney where unemployment was relatively high as that region didn't benefit greatly from some of the employment growth that was happening at the time.
MICHAEL EDWARDS: Saul Eslake says the results also reflect the fact that many people in south-western Sydney take out mortgages with higher interest rates.
SAUL ESKALE: That meant in turn that people in this situation were especially vulnerable to any increase in interest rates, to any reductions in their income, perhaps for example as a result of having their working hours reduced during the financial crisis, and to any decline in property prices.
And of course Western Sydney was one of those areas where property prices did fall during the middle years of the past decade.
MARK COLVIN: Economist Saul Eslake ending Michael Edwards' report.
Source http://www.abc.net.au/pm/content/2010/s3036543.htm
The report by the global ratings agency Moody's says the further borrowers live from city centres the more like they are to have mortgage stress.
It found the worst performing areas included Campbelltown, Minto, Liverpool and Fairfield which are all in Sydney's south-west.
In these places nearly 3 per cent of mortgage holders have failed to make at least one repayment.
Michael Edwards has this report.
MICHAEL EDWARDS: As a financial counsellor for Mission Australia based in Campbelltown in south-west Sydney John Sexton says it's not a good sign for the rest of the community if his business is booming.
JOHN SEXTON: I'm seeing personally probably 10 to 12 clients a week at the Campbelltown office. With that we've probably seen an increase from one in eight of our clients having mortgages to probably one in three having mortgages now and being under mortgage stress.
MICHAEL EDWARDS: That sounds like a fairly alarming rise.
JOHN SEXTON: It is. And it relates to a big part of it is the financial literacy problem within the south-west of Sydney.
MICHAEL EDWARDS: When you talk about financial literacy what do you exactly mean?
JOHN SEXTON: A lot of people don't understand when they get, particularly when they get a home loan that most financial institutions will automatically give them credit cards or will give them interest free loan deals to get furniture or things like that.
And so they go out and get those credit cards or the interest free deals. But they haven't actually sat down and done a budget or a personal money plan to see that they can afford to make the repayments of everything.
MICHAEL EDWARDS: John Sexton's observations of mortgage stress in south-west Sydney come straight from the coalface of the problem. And they're also backed up by economic research.
The ratings agency Moody's has just released a report indicating south-west Sydney has the worst rate of mortgage stress in the country.
Here between 2.5 to almost 3 per cent of borrowers have defaulted on at least one repayment.
In the Fairfield-Liverpool district mortgage delinquency numbers are double the national average.
John Sexton says more effort should be put in to better educating people about what they're getting into when they take out mortgage products.
JOHN SEXTON: That is a big part of the problem. But also part of the problem for south-west Sydney is that most of our mortgages are set up on a couple, two people's incomes where when one of those, either through having children or they lose their job, they're down to one or one and a half incomes.
So therefore they can't afford the original mortgage, let alone the credit card debts or the interest free loans.
MICHAEL EDWARDS: Do you think that financial institutions are giving too many loans on this basis?
JOHN SEXTON: I think personally before the new credit code came in in July that it was that they were giving too many of those loans without checking whether the people could properly finance it.
MICHAEL EDWARDS: Economist Saul Eslake from the Grattan Institute says south-west Sydney has always been a region susceptible to mortgage stress.
SAUL ESLAKE: Well I think this was a phenomenon that was observed in the years leading up to the financial crisis. Western Sydney was one of the regions experiencing the greatest degree of mortgage stress as interest rates on mortgages rose to over 9.5 per cent back then.
And among the reasons for that were the stagnation of incomes in Western Sydney where unemployment was relatively high as that region didn't benefit greatly from some of the employment growth that was happening at the time.
MICHAEL EDWARDS: Saul Eslake says the results also reflect the fact that many people in south-western Sydney take out mortgages with higher interest rates.
SAUL ESKALE: That meant in turn that people in this situation were especially vulnerable to any increase in interest rates, to any reductions in their income, perhaps for example as a result of having their working hours reduced during the financial crisis, and to any decline in property prices.
And of course Western Sydney was one of those areas where property prices did fall during the middle years of the past decade.
MARK COLVIN: Economist Saul Eslake ending Michael Edwards' report.
Source http://www.abc.net.au/pm/content/2010/s3036543.htm
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