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Cash rate confusion: Home owners outstrip renters in financial test yet two thirds have never stress tested their home loan

By Hannah Twiggs | 26 Nov 2018
5 min read

26th November 2018

A new national study[1] measuring ‘financial consciousness’ found Aussie homeowners scored well above the national average (51) with 56 out of 100, versus renters who failed with an average score of 44.

The Financial Consciousness Index (FCI), which was commissioned by comparethemarket.com.au and developed by Deloitte Access Economics, tested 3,000 individuals’ belief in their ability to influence their financial outcomes, as well as their willingness and sophistication to make a change to improve their financial wellbeing.

Whether someone owns their own home is a major contributing factor that affects a person’s FCI score, along with their age, income, gender, location, and education. Home owners naturally tend to take more of an interest in their financial position, as well as follow interest rate changes and other macroeconomic indicators.

While home owners scored more positively than renters overall, the study revealed some worrying assumptions from home owners that property prices will continuously rise. Three quarters of respondents (73 per cent) think their home will retain or increase in value next year, and a further 70 per cent believe their home has either held or increased its value compared to last year.

Comparethemarket.com.au General Manager of Banking, Rod Attrill said: “Property prices are not something you can presume will always appreciate. Like all investments, the property market demonstrates a cyclical pattern with stagnation following a period of growth.

“It is a worrying time for many homeowners, with low interest rates and a sustained period of rising property prices pushing personal debt to record highs. Although the cash rate still remains unchanged, there are obvious signs that the market is turning and we’re seeing out-of-cycle rate increases by major and non-major banks alike. Interest rises should be a reminder for consumers to compare home loans to see if they can get a better deal.”

Alarmingly, many Aussies are lost when it comes to the cash rate. Over two thirds of home owners (68 per cent) have never or don’t know if they have stress tested their loan, which will likely cause financial stress for those unprepared for a change to their mortgage repayments. One in 10 respondents (11 per cent) admit they would have to draw down on their mortgage or take out a loan if they were suddenly unemployed.

“Over half of all Aussies surveyed (54 per cent) very rarely or never monitor cash rates, and a further quarter (24 per cent) have never heard of the RBA cash rate announcement. This dearth in financial literacy and a general lack of engagement with other key financial indicators is concerning given its potential for broader economic implications to the nation’s financial health.”

The FCI report revealed over a quarter (27 per cent) of Australians are not convinced that they are getting the best deal on their home loan. This belief is primarily held by half (48 per cent) of those earning between $70,001- $100,000, who admit that even though they feel this way, they haven’t shopped around to see if there is a better deal available.

Trust is also a concern. The financial institutions responsible for financing and insuring millions of residential properties across Australia have lost the confidence of 42 per cent of consumers, who said they have little to no trust in retail banks and insurance companies.

“Consumers run the risk of not getting the best deal on their mortgage due to decision paralysis. The study reveals that many people aren’t making a change to improve their household budgets out of fear of making the wrong decision. Finances don’t have to be intimidating, by using services such as comparethemarket.com.au, Aussies can easily compare their home loan, insurances and utility costs to make informed decisions that will help them take tighter control of their everyday finances.”

 

Case studies available:

Gary – Spotswood, Victoria
38-year-old father of one, Gary has taken a proactive approach to his finances, taking out income protection, repaying more than the minimum towards his mortgage repayments, regularly contributing extra cash into his superannuation, and saving money into a high interest account – creating a financial safety net to protect his family in case of an emergency. He wasn’t always smart with his money and used to carelessly spend. However, working with his wife’s financial planner has turned his money management around.

Colin – Sunshine Coast

Colin is 67 years old, retired and has an adult daughter living at home. Colin and his wife are renting a property, and are unable to meet their financial goals. Colin cannot receive any funds from Centrelink since retiring so they have to live off their savings and sell his newly built home to afford everyday expenses and stay with his children. He has never been taught about financial planning and had to learn this the hard way over time. Colin had to take action to improve his financial situation which basically meant he had to try and find work, which was very difficult at age 67. The cost of living for Colin is a huge struggle which he has not experienced for over 20 years.

 

For interviews with Rod and more information, please contact:

Claire Rosenberg | 07 3708 8696 | 0418 351 178 | claire.rosenberg@comparethemarket.com.au  

About comparethemarket.com.au

Comparethemarket.com.au is a comparison service that takes the hard work out of shopping around. We make it Simples for Australians to quickly and easily compare and buy insurance, energy, travel and personal finance products from a wide range of providers. Our easy-to-use comparison tool enables consumers to find products that best suit their needs and back pocket.

 

[1] The Financial Consciousness Index (FCI), which was commissioned by comparethemarket.com.au and developed by Deloitte Access Economics, tested 3,000 individuals’ belief in their ability to influence their financial outcomes, as well as their willingness and sophistication to make a change to improve their financial wellbeing.

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Written by Hannah Twiggs

Hannah (or Twiggs as she's known by most of her colleagues) is a non-stop talker, avid snack eater, dog lover and passionate writer. When she's not chatting to journalists or writing up new story angles, Hannah enjoys a good Netflix binge, going away camping with friends and big brunches - preferably with extra bacon.

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