Money Talks

Rate rises, living costs, housing affordability, savings…

2009 Mortgage Choice Consumer Sentiment Survey

More than one third of New South Wales residents plan to buy a property in the next two years despite concerns over rising interest rates, higher living costs and doubts over job security, according to the annual Consumer Sentiment Survey commissioned by Australia’s largest independently-owned mortgage broker, Mortgage Choice.

The independent online survey conducted by Veda Advantage in early November 2009 found the state’s biggest concern for 2010 was interest rates, prompting people to revisit their financial plans. Notwithstanding this, results show 47% of NSW respondents with mortgages believed they could afford to make repayments at an interest rate of over 11%.

Concerns, rate rise affordability and property vs. shares

The results showed the top three concerns for 2010 in NSW were interest rates (21%), job security (17%) and other costs of living such as utility bills and clothing (15%). Last year, the major concerns were job security (23%), followed by economic management at Federal Government level (15%) and other costs of living (14%).

These concerns aside, three quarters of this year’s NSW respondents were confident the Australian economy would be strong during 2010, so much so that one third (35%) planned to take the leap into property ownership within the next two years. 46% of these buyers-to-be planned to purchase investment properties.

Over half of all NSW respondents (56%) feel the global financial crisis has made investing in property seem safer than shares. Western Australia had the highest percentage of respondents who believed this to be the case, at 61%.

When asked to an answer with a mortgage interest rate of 6% in mind, 47% of NSW respondents who were mortgage holders said they could afford an interest rate increase of more than five percentage points before they would need to consider selling their property. 19% of those said they could afford ‘any’ increase - the second most popular response.

Almost all NSW respondents saw interest rates increasing between November 2009 and June 2010 (99%), with the majority (29%) anticipating rates to rise by 0.5% to 1%.

Local franchise owner for Mortgage Choice, Peter Johnson said, “Since the global financial crisis hit over 18 months ago, it is pleasing to see more New South Wales borrowers taking ownership over their financial situation. It’s great to see a high percentage are well prepared for rate rises of at least five percentage points.”

“We’re also pleased to see almost half - 46% - of the NSW respondents planning to buy property in the next two years were considering an investment property. Hopefully an increase in demand from this buyer group will stimulate more housing construction.”

Spending, saving and budgets

A sign of changing times, 46% of NSW respondents planned to alter their budget in the next year to save more - second only to QLD. However, NSW had the highest number of respondents say changing economic conditions will not affect their savings plans (34%). 12% were unsure whether changing conditions would impact their plans and 8% do not have savings and had no intentions to start in 2010.

New South Welshmen were taking a cautious approach to their spending habits for 2010, according to the 2009 Consumer Sentiment Survey. 35% of current mortgage holders planned to make changes to their financial situation during the year ahead while 33% were not expecting to make any changes and a further 32% were unsure. The top four changes planned were:

· 57% - Review my budget (compared to 52% in 2008)

· 57% - Review my mortgage/s (compared to 49% in 2008)

· 37% - Cut back on my spending (compared to 56% in 2008)

· 37% - Pay off my credit cards (compared to 35% in 2008)

The personal budget was also under review, with 42% of non-mortgage holders planning to make changes. 24% did not expect to make any changes and 33% were not sure yet. Changes included:

· 62% - Review my budget (compared to 55% in 2008)

· 43% - Cut back on my spending (compared to 41% in 2008)

· 38% - Pay off my credit cards (compared to 37% in 2008)

· 37% - Take out a mortgage (compared to 30% in 2008)

“It is interesting to see only just over half of all NSW respondents will review their budget in the next 12 months, with only a small percentage - 19% - of mortgage holders intending to refinance their home loan to see what other options are available. Regular budget reassessment and actually managing your finances is much more effective in keeping financial distress at bay than simply maintaining the status quo. This is especially important for mortgage holders or those looking to take one out,” Peter said.

House price predictions

The changing economy has reversed expectations for housing prices in the year between surveys. Increased housing prices over the next 12 months were anticipated by 64% of the NSW respondents in 2009 (compared to 16% in 2008). A further 21% expected prices to remain stable (27% in 2008), only 8% expected a fall in prices (51% in 2008) and 7% remained unsure (6% in 2008). Western Australians were the most optimistic prices would fall, at 9%.

With housing prices predicted to rise, 60% of NSW respondents planning to purchase in the next two years would make sacrifices to do so. The most likely sacrifices were:

1. Cut back on spending (94%)

2. Miss out on an overseas trip (49%)

3. Remain in their current job (46%)

4. Purchase a less expensive property than desired (33%)

5. Take on an additional job (21%)

Other key NSW statistics

· NSW is the second most prepared state when it came to coping with any interest rate rise. VIC was first with 21%, followed by NSW at 19% and QLD third with 15%.

· Only 27% of respondents believed the expiry of the First Home Owners Boost would definitely or likely improve housing affordability, while 42% thought it unlikely, 27% were unsure and 4% said it would not make a difference.

· To ensure they get a foothold on the ladder, Sydneysiders were more likely to purchase a less expensive property than desired (44%) and a property in a non-ideal location (22%), compared to the rest of the state (14% and 5% respectively).

· 56% of NSW respondents will not purchase shares in 2010. 19% will purchase shares as an additional investment to property in 2010, 16% will purchase shares as an alternative to property, 10% will purchase shares for both reasons. VIC respondents were the most likely to be planning to purchase shares.

· 62% of NSW respondents will consider using a mortgage broker in future.

Visit Peter’s website at www.mortgagechoice.com.au/Sutherland 1 or call 9521 1611.

About the Survey

Mortgage Choice commissioned the independent nationwide survey in November 2009 using the Ticketek Rewards panel. The survey asked a range of questions about sentiment to 1,025 respondents aged 18+. The last consumer sentiment survey was conducted in November 2008. Please note, due to South Australian and Northern Territory being underrepresented these results have excluded. For the purpose of this survey, the key to generations is as follow: Generation Y refers to those aged 18-29 years, Generation X to 30-49 years and Baby Boomers to people aged 50 years and over.