2010 Mortgage Choice national consumer sentiment survey revelations

December 01, 2011

Australia's largest independently-owned mortgage broker, Mortgage Choice is today releasing the results of its national 2010 Consumer Sentiment Survey. The company has run the annual study since 2004.

This year's survey questioned 1,061 Australians, 536 of whom had a mortgage, about a range of finance and property related matters. It was completed during the seven days preceding the November cash rate rise.

Contrary to last year, the biggest concern for the next year was 'other costs of living such as utility bills, clothing, etc' (27% of respondents vs. 17% in 2009). Interest rates came in second, having dropped from first place in 2009 (16% vs. 19%). This was followed by economic management at Federal Government level (15% vs. 15%), job security (8% vs. 16%) and food costs (7% vs. 7%).

35% of respondents intended to purchase property within the two years to November 2012, with 36% planning an investment property, 33% their next home and 31% their first home. It was interesting to note potential investors were the most concerned about rates, with 27% ranking it as their biggest concern, compared to 19% of next homebuyers and 8% of first homebuyers.

Mortgage Choice senior corporate affairs manager, Kristy Sheppard said, "Despite widespread expectations of interest rate rises throughout the next 12 months, our annual Consumer Sentiment Survey found the concern over utility bills and other living costs outweighed concern about interest rates."

"It's possible this was the case because the November cash rate rise had not yet been announced, which in turn would illustrate how much of a surprise that and subsequent lender rises were to Australians.

"The moves would have been a great disappointment to the 9% of mortgage holders surveyed who said that, based on an interest rate of 7%, they could not afford any rate rises before considering selling up.

"This sad situation says so much about the need to be prepared for a variable interest rate rollercoaster ride before you enter a home loan contract, and of steering clear of extra debt commitments unless certain you can afford it should the rate landscape change.

"On the flipside, this finding will be music to the ears of people who intend to buy property soon and have already factored in rising repayments. It means they may be able to take advantage of discounted stock."

Major findings - home loans

• 4% of those with a mortgage said that, based on a 7% interest rate, they could afford only one 0.25 percentage point rate rise before considering selling their property. 5% could afford 0.25 to 0.5 points, 6% could afford 0.5 to 0.75 points and 8% could afford 0.75 to 1 percentage point.
• On the other hand, 20% could afford rate rises of over 5 percentage points.
• The top two resources for home loan research were lenders' and loan comparison websites.
• 11% believed rates would rise by up to 0.25 percentage points in 2011. 33% said 0.25 to 0.5 points, 21% said 0.5 to 0.75 points, 15% said 0.75 to 1 point and 19% saw rates rising by over 1 point.

"It is disheartening to find that, although almost everyone surveyed was aware to a certain extent of the interest rate environment expected over the next year or so, a significant proportion of mortgage holders may need to put their property on the market should that become reality," Ms Sheppard said.

"The majority of economists and commentators predict cash rate rises of at least 0.5 percentage points during 2011. That would be enough for around 18% of Australian mortgage holders to consider selling up."

Major findings - buying property and shares

• 59% said the GFC had made investing in property seem safer than investing in shares.
• 30% will renovate an existing property as an alternative to buying one in the next two years.
• 16% will buy shares instead of property while 20% will buy both.
• 60% of those buying property in the next two years (35% of respondents) were making some kind of sacrifice in order to do so.

The top five property purchase sacrifices were:

1. Cut back on spending - 84%.
2. Miss out on an overseas trip - 50%.
3. Purchase a less expensive property than desired - 35%.
4. Remain in my current job - 30%.
5. Take on an additional job - 20%.

A higher portion of people this year said the GFC made property seem a safer investment than shares (59% vs. 57%), perhaps a result of the property market's strong capital growth in the 18 months or so to mid 2010. Females were more likely to say so than males (66% vs. 52%), as were Baby Boomers (64%) and South Australians (62%).

"This finding is good news for the industry at a time when the number of housing finance commitments has slowed, as is the fact that over one third of respondents intended to buy property in the next two years. The Great Australian Dream is definitely still alive and kicking," Ms Sheppard said.

The top five motivations for buying were:

1. To set myself up financially for the future - 50%.
2. I see more benefit in investments such as property than I do in the share market - 31%.
3. I want or need to relocate - 26%.
4. To add to my portfolio to set myself up for retirement - 23%.
5. I want to get my foot in the property market door - 22%.

Major findings - housing prices and affordability

• 31% said the housing affordability issue was underrated while 13% said it was overrated.
• 49% expected housing prices to increase over the next 12 months.

Clearly signalling the dominant mindset of Australians, around half the respondents (49%) said talk about housing affordability was 'about right' and almost one third found it underrated. Males were more likely to believe it was underrated than females (34% vs. 27%), as were Baby Boomers (34%) and Victorians (36%).

Around half the Mortgage Choice Consumer Sentiment Survey respondents expected the country's housing prices to increase over the next 12 months and only 13% said prices would decrease. 30% saw them remaining stable while 9% weren't sure. Males were more likely to believe prices would increase (54% vs. 45% of females), as were Generation Y (57%) and South Australians (57%).

In the 2009 survey, an increase in housing prices was anticipated by 64% of respondents.

Major findings - personal finances and the economy

• Of those with a mortgage, 55% planned to make changes to their financial situation next year. The top ranking changes were reviewing their budget (69%) and reviewing their mortgage/s (61%).
• Of those without a mortgage, 48% planned to make changes to their financial situation next year. The top ranking changes were reviewing their budget (59%) and cutting back on spending (51%).
• Of all respondents, 8% said they didn't have any savings and don't plan to start in 2011.
• 36% said rising interest rates and/or the economic recovery would see them saving more in 2011.
• 75% were either 'very' or 'fairly' confident that Australia's economy would be strong in 2011.

"The proportion of mortgage holders planning personal finance changes increased significantly year on year, with 55% in the 2010 survey comparing favourably to 40% in the 2009 survey," Ms Sheppard said. "It's terrific to see so many people taking ownership of their finances and making changes where necessary, especially in today's uncertain landscape. However, it would've been great to see everyone saving and even more proactive management among mortgage holders. It's clever to get a home loan health check annually."

The most popular personal finance developments for 2011 among those with home loans were:

1. Review my budget - 69%.
2. Review my mortgage/s - 61%.
3. Cut back on spending - 53%.
4. Pay off my credit cards - 43%.
5. Refinance my mortgage/s - 31%.

"The proportion of mortgage holders reassessing their budget in the next year rose 10 percentage points on 2009's sentiment survey result and those planning a mortgage reassessment rose six percentage points. The proportion looking to refinance increased by only one percentage point, but this was probably due to the survey being completed just before the surprise November cash rate rise," said Ms Sheppard.

Of those with a mortgage, Queenslanders were most likely to be planning a budget review (77%), as were Generation Y (76%) and males (71% vs. 66% of females).

Major findings - mortgage broking

• The number one reason for using a mortgage broker, for 34%, was it 'saves me from researching a range of lenders and loans myself'.
• 61% would consider using a mortgage broker in future.
• 64% knew what services were provided by mortgage brokers, 24% did not and 12% were unsure.
• 59% said national regulation of this industry would make them more likely to use one.

The groups with the highest percentage of respondents who understood mortgage broking services were males (66% vs. 63% of females), Generation X (72%) and Western Australians (69%).

"The survey results make it clear that national regulation will have a powerful influence on mortgage broker usage. It's been a long time coming. Today, around 40% of all new Australian home loans are sourced by brokers. Hopefully this will rise to 50% and beyond in the near future, as the industry better promotes itself and consumer perceptions of a mortgage broker's role and value proposition improve," Ms Sheppard said.

For more statistics, further information or to arrange an interview, please contact:

Belinda Williamson                                                              
Mortgage Choice                                                          
(02) 8907 0472             
belinda.williamson@mortgagechoice.com.au