Peter Ryan doesn’t have a credit card. He owns his car outright with no loan, and has worked long-term in stable employment in the public service, while boasting a household income comfortably above the national average.
He is also deep in mortgage stress and has put the apartment he shares in Sydney’s north-west up for sale.
Ryan, 53, is part of a growing cohort of relatively affluent Australians succumbing to a combination of elevated interest rates and rising living costs.
“I’m not crying poor, our household income is not low. But if we are a household earning above middle income, what does that say in terms of the rest of Australia?” Ryan says.
Historically, those pressured to sell their family home have experienced a major event such as a health issue or job loss. Now, it’s the long, slow burn of elevated rates and inflation-fuelled living costs prompting people to sell to free up capital – in order to live.
Ryan says after mortgage repayments and bills are met he has just under $300 a fortnight left for discretionary spending, roughly the same amount he had more than a decade ago. In that time, however, the cost of everything else, such as a movie ticket or restaurant meal, has rocketed.
“I had hoped to be living a bit more comfortably than this after 30 years of employment,” he says. “Our policies are putting pressure on the cohort of the population that is arguably the most productive, putting the brakes on people who are in the workforce and raising families.”
Blunt tool of interest rates
Interest rates, a blunt tool used to quash demand and bring inflation under control, have a disproportionate impact on the population, with older, debt-free savers often benefiting from the market cycle while mortgaged households suffer.
This raises questions over whether there are more equitable alternatives as the gulf between older, wealthier Australians and the rest of the population widens.
Nicholas Gruen, chief executive at Lateral Economics, says Australia should be looking at alternative policies, although he warns they aren’t necessarily pain-free. Often politicians don’t have the stomach for them, he adds.
“There are many ways we can either restrain the economy or regulate the economic cycle,” Gruen says. “The context in a macroeconomic way is to inflict pain. And then the question becomes, ‘Who do you inflict it on?’
“There are frequent opportunities for politicians to do useful things … But then there’s the risk they have a big fight on their hands which they might lose.”
For example, Australia could vary superannuation contribution requirements – or use an equivalent mandated savings scheme – to fight inflation, although it’s questionable that such a policy could muster political support.
It would be a brave politician to specifically target the high-spending over-65 cohort and there’s a question over whether such a policy would restrain spending anyway.
Some economists have also raised the subject of strategic price controls, an idea that has failed to gain widespread traction. There is also debate over whether the Reserve Bank’s inflation target is even set correctly and supported by rigorous economic analysis.
In the meantime, the more than one-third of Australian households that own their own home, with a mortgage, will bear the brunt of the inflation fight as their ability to consume is stripped away.
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Stephanie Tonkin, the chief executive of the Victorian-based Consumer Action Law Centre, says there has been a 25% increase in calls to the debt helpline last financial year, with the increase driven by those in employment.
“That’s where the real increase has come from, people in employment and even dual income households are presenting under quite serious financial stress,” she says.
Data from Digital Finance Analytics shows the strain has been growing consistently in recent years, with more than 40% of those classed as “exclusive professionals” and “mature stable families” now suffering mortgage stress.
This escalates for “young growing families” with a mortgage to almost 90%.
Tonkin says many people who might typically sell their home and rent instead cannot see a viable way forward because of the lack of affordable housing options.
“People are desperately trying to hold on to their home because they don’t see an option to easily move into a rental property,” Tonkin says. “That’s just not a sure bet any more, and that’s contributing to a lot of stress, emotional, financial and psychological.”
‘Generational failure’
While Australia’s major lenders are reporting modest levels of mortgage defaults and home repossessions, there is a spike in the number of homeowners falling behind as the rapid-fire 13 rate hikes enacted since mid 2022 erodes savings buffers.
There is also the prospect that the Reserve Bank will raise rates further, or at least keep rates higher for longer, due to sticky inflation.
Ryan is part of the “mortgage cliff” group who have come off fixed rates as low as 2% to well above 6%, which is higher than he had budgeted for. The Reserve Bank refers to the mortgage cliff as a “ramp up”, noting that the pressure builds over time as opposed to falling off a precipice.
Ryan is in a more fortunate position than others in that cohort, given he will be able to use the sale of the apartment to free up disposable income. He says he may even buy a modest investment property while renting elsewhere close to where his daughters go to school.
But it is still a major financial setback, which Ryan attributes to “lazy policymaking” by successive governments when it comes to housing supply and an over-reliance on interest rates to fight inflation.
“After 30 years of paying taxes and never asking anything of the government beyond some basic universal healthcare and four years of public schooling for my oldest daughter, I will be hundreds of thousands of dollars worse off when I retire due to interest rates and the cost of housing,” Ryan says.
“We’ve had generational failure in government to address the dwindling benefit of interest rates to manage inflation and poor housing policy.
“It’s just squeezing people so that they are compromised in so many different ways.”