ABOUT 800,000 Australian households and up to 2 million small and medium-sized enterprises are living on a knife-edge and could go under in the face of high costs of debt, the latest mortgage report compiled by JPMorgan and Fujitsu warned yesterday.
More than 800,000 households are experiencing some form of mortgage stress — five times more than in March last year, according to Fujitsu Consulting’s updated mortgage stress-o-meter.
“Those with young growing families are hardest hit, with 30 per cent in stress. But affluent customers are also continuing to feel the pinch, as investment returns fall and bonuses are reduced,” said Martin North, managing consulting director of Fujitsu. “While mortgage interest rates will fall now, mortgage stress will not necessarily fall in line because we expect unemployment to rise.”
Helen Kevans, an economist with JPMorgan, said job losses had already started in the retail industry and there could be more losses in the mining sector, as capital expenditure was reined in. And with the pullback, there would be more unemployment.
JPMorgan is forecasting the unemployment rate to hit 4.6 per cent by year end — up from 4.1 per cent now — and to rise to 5.5 per cent next year.
Mr North said an increasing number of SMEs were trying to reduce their level of debt and when they refinanced, their borrowing costs would go up.
“Survival is the main issue here. If they go under, then their employees would lose their jobs and would not be able to service their mortgages,” he said.
He warned there was a “30 per cent chance that Australia may go into a recession, as we cannot isolate ourselves from the global turbulence and recession has already started in the UK, Europe and the US”.
JPMorgan banking analyst Brian Johnson said Australian households were highly geared because of the “ever-rising house prices”.
But the pie is shrinking, as non-banks continue to lose market share as brokers consolidate.
Home lending growth would continue to slow because of banks’ repricing outside of moves in the official cash rate and the retreat of wholesale lenders because of expensive funding.
With broker origination loans falling, consumers have less choice and would be paying more for their mortgages.
“As banks manage profitability and credit growth, this will ultimately force de-leveraging across households, businesses and indeed banks themselves,” Mr Johnson said. “The sharp upward trajectory in household interest as a proportion of household disposable income, from 5 per cent in 2002 to over 11 per cent, is a function of two discrete drivers — increased gearing followed by higher funding costs.
“A reduction in the standard variable rate to alleviate pressure on household income is only part of the equation. De-gearing needs to take place as well.
“We expect subdued levels of retail spending for some time to come, which will maintain pressure on business profitability and, ultimately, unemployment.”