Why Is 30%+ Of Household Income Considered Mortgage Stess

:confused:Hi, my wife and i bring home about $1700pw,our loan repayment is about $530pw which is 32%, we can afford double that and do.why people want to be able to own a home and still blow 70% of their income baffles me.I reckon they should put 70% of income into their home and live on 30%. any thoughts
 
Depends what you earn. Our mortgage is under 20% of our income and we quite efficiently blow the rest on Stuff. We couldn't sensibly afford more than around 30%.

Doesn't help that I can't really work at the moment so I'm living off $300 a fortnight Newstart, and will be for the next few months at least. Such a generous sum :rolleyes:
 
Your spot on. The 30% becomes more relevent the less you earn. $ 1700 is well above what many earn in this country. Imagine a couple taking home $1000 per week. Take out 30% and it starts to get harder to make ends meet. But then there is the argument that people on low incomes shouldnt be able to afford a house easily. thats the point of working hard to further your career and income.
 
Fujitsu have now changed that measure as they obviously realise it isn't exactly accurate.
From their website
Fujitsu Consulting quickly identified that the old rule of thumb definition of mortgage stress - 30 percent of income supporting payments - was too blunt to be useful.

Not sure what measures they use for their "Mortgage Stress-O-Meter" which is what they use now but would be interesting to know.

For a couple with an average mortgage who also have car loans, Hardly Normal loans, credit cards etc, then 30% may be pushing the stress levels.

I'm with atsim, it should be round the other way, 70% for mortgage and %30 to live on.
 
thanks lebowski, the thing is im also contibuting towards 2 ips .and a combined wage of 100kg is hardly above average is it. some of my work mates take home more than me and pay rent around 350-450pw and are strugling? i dont get it
 
some of my work mates take home more than me and pay rent around 350-450pw and are strugling? i dont get it
That's called 'poor money management'.

My tenants pay barely less in rent than we pay in mortgages, and their income is similar if you take into account we have dependants and they don't. They live like paupers. We have a very nice house with nice stuff in it, the (admittedly cheap) IP and one house being built. Two familes on identical incomes at any level can do very different things with that money.

Smoking and drinking or not makes a frightening difference at the lower end of the income scale - a much bigger difference than rent/mortgage.
 
thats my point rumpledelf, the banks wont lend me anymore money TO INVEST because they assume i cant manage debt ,like the next joe blowit who needs to waste his 70% on vices. i think if you have proven yourself that 30% should increase sustantialy
 
Hi At

With the right lending structure the DSR doesnt come into it at all.

Affordability with most lenders is treated differently where IPs are involved



ta
rolf
 
This type of "social ruling measurement" is great for the unwashed masses, but totally inappropriate when you start generating decent incomes.

Ten years ago we used to spend 20% of our incomes on sustaining ourselves. The actual figure has doubled over the last 10 years, but the ratio is now under 2% of our income.

I have learnt that the revenue side of every equation is far more important than the cost side of the equation.

Regardless, the Banks still want to know what our grocery bill is, and what the credit card limit is.....some things never change.

I wonder when Frank Lowy sits down with his consortium of Banks, whether they ask him what his wife spends at the supermarket every week ??
 
Regardless, the Banks still want to know what our grocery bill is, and what the credit card limit is.....some things never change.

On that note; it is a good time to mention (to newbs) that your credit card LIMIT is what the banks figure into your DSR. Not the balance so much.

We have struck this. We have a zero c/c balance at the end of every month, but the total limit is divided into 12 and factored into the repayment figures.

I wonder when Frank Lowy sits down with his consortium of Banks, whether they ask him what his wife spends at the supermarket every week ??

Would love to be there when this is asked.

Imagine being asked this question by someone on a 100th the salary he earns.

I'm guessing he would shuffle the docs into a nice neat pile, slide them into the attache case and say "see yez later, spoonheads" over his shoulder as he walked out the door.
 
Gross or Net Earnings?

Is mortgage stress defined as being 30% of gross or net income? (i.e. before or after tax.)

If it's the former (and I saw an article suggesting it is) then a rough breakdown for Atsim would be:
  • Gross income: $2500 per week (estimate)
  • Net income: $1700 per week
  • Mortgage: $530 per week
  • Mortgage stress at: $750 per week
Atsim's mortgage is just over 20% of the household income, and so well below levels that cause stress.

The mortgage stress figure above corresponds to around 45% of net income. That's a large chunk of your earnings to be going out each month for housing, and would reduce the ability of a mortgage holder to save.
 
Rents confuse things no end.

Assuming by some miracle they actually give us a loan to build our PPoR (I STILL don't have a fixed price contract so STILL can't go loan shopping for a lodoc 60% construction loan) we're going to have a combined mortgage over all three properties of about $210k and combined rental income from the two we don't live in of around $16-18k, which even with my poor math I'd say means we're pretty well covered for mortgage, rates and insurance, although honestly I'd prefer to have both our older houses sold and be completely debt free with a nice chunk of cash and a brand new PPoR.
 
I hear what your saying rumpledelf,the light is right where iam ,at the end of the tunnel.It will be a nice change.the veiw will be exellent
 
At the moment, our Mortgage is 27% of our total income. We are low income earners aswell, pulling in on average $1400 a week post tax - not much at all. I think what you have to take into consideration is how most average people these days probably have personal loans, and credit cards with debt.

We are currently paying out a loan that was borrowed through my partners father which does chew up alot of extra cash. ~$220 a week extra because we are trying to pay it off asap.
 
I actually commented in another thread about the 30% mortgage stress equation. I think it's a completely invalid tool and mortgage stress would have to be assessed based on a houshold's earnings plus other debts.

for example, my partner and I take home $2,000 per week. We pay $600 (sometimes more) towards our mortgage. This is equal to 30% - meaning we are under mortgage stress.

We are left to live of $1400 per week and we have NO other debts, no credit card debt, car loan or personal loan. In this instance $1400 per week is way more than enough to live on!!
 
I actually commented in another thread about the 30% mortgage stress equation. I think it's a completely invalid tool and mortgage stress would have to be assessed based on a houshold's earnings plus other debts.

for example, my partner and I take home $2,000 per week. We pay $600 (sometimes more) towards our mortgage. This is equal to 30% - meaning we are under mortgage stress.

We are left to live of $1400 per week and we have NO other debts, no credit card debt, car loan or personal loan. In this instance $1400 per week is way more than enough to live on!!

Hi Mez,

I agree, 30% sounds like an arbitrary figure. But it's calculated on 30% of your gross income, not your after tax income.
 
dan c,

thanks for the info - i didnt realise that!

So technically taking into account the gross income I wouldn't fall into the 'mortgage stress' category.

However, I have to say, that even with an equation using the gross income, it is still extremely variable and innaccurate.

i.e. My gross annual income is approk 60k, I only pay approx 4k per year tax because I work for a non-profit organisation and salary package most of my wage.

My net (disposable) income of approx 55k would vary immensely compared to anyone else's gross income of 60k!!!
 
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