CEO of Joust, Carl Hammerschmidt sits down with Tom Elliot on 2GB radio to discuss mortgage stress and when interest rates will rise.
Find the full transcript of the conversation below.
Tom: 10 postcodes around the nation, have been analyzed as likely to suffer mortgage stress when interest rates go up and you've heard it from me and I'm not the only person saying it. Interest rates are going up and the reserve bank meets tomorrow and we could see a rate rise tomorrow. If not tomorrow than this time next month. So, 10 postcards around the nation have been identified as having the highest level of mortgage stress. Six of those postcodes are in Victoria. They include places like Nary, Warren, South Barrick, Roxburgh Park, Cranbourne, Sydenham, and Packenham. So, if you live in one of those areas give me a call at 104-3693. Analysis by a group called Digital Finance Analytics [DFA], says that if interest rates go up just half a percent 143,000 households across these postcodes might struggle to pay the mortgage. If interest rates go up, one percent. Which I think is more than likely the number of households under mortgage stress rises to almost 322,000. Our next guest participated in this research he's the CEO of Joust, it's an online home loan marketplace Carl Hammerschmidt, good afternoon.
Carl: Good day Tom how are you?
Tom: Well, good so you and DFA the firm I mentioned before you sort of did the research together did you?
Carl: That's correct yeah. They've got a rolling statistically valid survey of 52,000households across Australia. It's a longitudinal study, which allows us to really dig down into the spending and financial circumstances of Australian households across the country.
Tom: So, how do you define mortgage stress? Is it the households who might not be able to pay the mortgage at certain rises and interest rates?
Carl: Correct yeah. Look it's based on net cash flow. So, money in and versus money out I guess we define mortgage stress. Really simply as being where our household occupants are either able to pay their mortgage under duressor they're actually behind in their mortgage payments in some way. And then as you said that's 42 of the mortgage households in Australia currently.
Tom: Right. Now, it's disturbing to see that you've got the 10 most stressed postcodes around Australia are of the 10, 6 of them here on the outskirts of Melbourne.
Carl: Yes, look at you know absolutely, there's a very large concentration as you've seen around that those southeastern and northwestern corridors. In those in areas, I guess if you look at it on a demographic basis, it's really those younger often sort of first-time homebuyers who are being hit the hardest and many of them have I guess bought in the very low-rate environment that we've had over the last couple of years. And they've brought into these high-growth development corridors.
Carl: Yes, look at you know absolutely, there's a very large concentration as you've seen around that those southeastern and northwestern corridors. In those in those areas, I guess if you look at it on a demographic basis, it's really those younger often sort of first-time homebuyers who are being hit the hardest and many of them have I guess bought in the very low-rate environment that we've had over the last couple of years. And they've brought into these high-growth development corridors.
Carl: Look absolutely, I mean you're talking on the average home loan of five hundred thousand dollars or so, you're talking about thousand dollars a month in extra repayments and that's significant particularly when it's coupled with all of the inflationary pressures and cost of living pressures that everyone's under at the moment.
Tom: The banks are supposed to what they call Stress Test Mortgages. So, when you borrow money, they say well let's not just use today's rate let's assume it's a fair bit higher. Do you think the banks have really done this?
Carl: Well, look there are all the new responsible lending practices that have come in since the royal commission and there's the best interest duties at play with regards to how brokers and banks are meant to lend and the industry is meant to have been operating by those for the last couple of years, I think you've got a confluence of circumstances currently whereas I said with the high cost of living the cheap rate of money, and I guess this unstable environment which is really going to start to make your bug feel the pitch.
Tom: And finally, quickly I don't know if you had much of a chance to look at Anthony Albanese’s plan but I mean essentially. If he's elected, he'll have the federal government giving well not just first home buyers but anybody with an income up to 90,000 for singles or 120,000 for couples the federal government might subsidize or essentially buy up to40 of the value of their home. Do you think that's a good idea?
Carl: Look I think that any initiatives that look to help to get people into affordable housing should be considered there's a range of views around this around could put heat under the market it could benefit as you said earlier but the sellers rather than the buyers. Look there is a point of view that also says that this is actually it's well-targeted and that it could actually not have too much of an over heating effect on the market and might actually help some people get into the market where they might not otherwise it's a very tricky market and people should I guess really buy everywhere when they're going in and looking at leveraging heavily against some of these new purchases.
Tom: As the Romans used to say Thank you, Carl. Carl Hammerschmidt the CEO of Joust online home loan marketplace that co-authored this researching the mortgage stress.