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Connexus : Issue 38
connexus www.abacus.org.au 45 45 connexus www.abacus.org.au australians are choosing to cut spending across a wide range of expenses including two-thirds (68 per cent) cutting back on luxury goods, 60 per cent reducing their clothes budget, and 56 per cent spending less on groceries and other necessities, the survey found. While australian homebuyer confidence was down 2 per cent from Genworth’s last survey in March 2011, 36 per cent of borrowers still think now is a good time to buy a home. Despite the drop, the index is still 3 per cent higher than levels recorded in 2008 during the global financial crisis. “The results show the drop in borrower confidence is mainly due to an increase in the number of borrowers experiencing mortgage stress – up from 21 per cent in March this year to 25 per cent in this survey,” says Comerford. Despite higher rates of mortgage stress, the vast majority (85 per cent) of borrowers who are experiencing mortgage stress say they are not actually behind on repayments, according to Genworth. Borrowers are also becoming more conservative, w ith over 41 per cent having overpaid their mortgage within the past 12 months, the survey found. among the reasons for mortgage stress, the rising cost of living was the number one concern for an increasing proportion (72 per cent) of home owners struggling with their mortgage. Home owners with mortgages are also worried about the possibility of rising interest rates (50 per cent) and existing debt obligations (33 per cent). Queensland looks up The survey found that almost 60 per cent of home owners in Queensland who were affected by the recent natural disasters have fully recovered. and, according to the survey, most business owners hit by the natural disasters are not suffering from any great degree of mortgage stress. The improving conditions in Queensland led to a 4.2 per cent rebound in overall homebuyer confidence since Genworth’s March survey but other states didn’t fare as well. Western australia is now the least confident, while Victoria recorded the largest drop in confidence (7.1 per cent) since March. FEATURE INSURANCE Mortgage insurance moves Consumers see mortgage insurance as a plus. Most consumers consider lenders’ mortgage insurance important because it helps Australians get onto the property ladder sooner, according to research commissioned by mortgage insurer Genworth and carried out by UMR Research. Lenders’ mortgage insurance has been in Australia since 1965. It was introduced as a government policy and run as a government-owned business for many years, says Genworth CEO Ellie Comerford, and that’s another plus in homeowners, and prospective borrowers’ minds. “Consumers also valued that lenders’ mortgage insurance is a community- priced product, as opposed to a risk-based priced one (which could negatively impact on those in less affluent areas). Community pricing means that borrowers who take out loans (in the same loan to value category) pay the same for lenders’ mortgage insurance whether they live in Sydney, Brisbane or regional Australia,” she says. Genworth has supported a move by the federal government to introduce a mandatory mortgage fact sheet for homebuyers about lenders’ mortgage insurance as part of its bank competition reform package. The fact sheet will help homebuyers compare “apples with apples” and help them better understand the costs and benefits of lenders’ mortgage insurance, says Comerford. Genworth believes the fact sheet could be similar to the government’s Key Fact Sheet for home loans, and could be handed out by lenders just before borrowers sign their home loan contract. Comerford says Genworth has been working with the federal government, lenders, the Insurance Council of Australia and all political parties on the lenders’ mortgage insurance fact sheet for some time. “ It’s important that homebuyers know how lenders’ mortgage insurance works and the benefits it offers, plus their potential rights in relation to existing refund schedules if they switch home loans. Genworth supports this move to improve disclosure and transparency for homebuyers. We also support Treasury’s findings and the government’s decision to rule out the introduction of a scheme to allow the transfer of lenders’ mortgage insurance between lenders.” Lenders’ mortgage insurance is critical in helping make homes more affordable, says Comerford, by enabling home ownership for Australians with less than a 20 per cent deposit but who have a capacity to meet their mortgage repayments. About 90 per cent of loans to first homebuyers are supported by lenders’ mortgage insurance, allowing them to enter the housing market sooner. Comerford says Genworth wants to ensure that consumers: • are aware of LMI and the reason for it • are aware of how LMI reduces the interest rate for borrowers with a deposit less than 20 per cent • are aware that payment is most often spread evenly over the entire term of the loan • know about and use refund programs offered by lenders in the first two years • know that some lenders have chosen to provide a discounted mortgage insurance cost to borrowers at the outset of the loan in lieu of refunds