Consumer spending survey

How has the global financial crisis affected CHOICE members?
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03.Personal finances

As a result of changes to the economic climate, a large number of respondents are saving more, directing money into deposit accounts, investments, super contributions and so on, as well as paying down more debt. And when it comes to credit cards, CHOICE members are savvy, with 80% paying off their card in full every month to avoid interest and late payment fees and 27% of cardholders reducing their debt compared with this time last year.

Almost all respondents drive and more than a third shopped around for cheaper car insurance in the past year. More than a quarter (28%) of all respondents also shopped around for home insurance and 18% for health cover.

Despite the downturn, 54% of respondents said they’re in a financial position to invest money. Their preferred destinations for excess funds were fairly evenly divided between bank deposits, shares and property.

Managing the mortgage

When we reported on strategies to combat Mortgage stress, the standard variable interest rate was 9.4%, following 12 successive rate rises since 2002. How times have changed! While mortgage stress remains a major concern, it’s for different reasons: central bank interest rates have come down 4.25% in the past year, with most of that being passed on to mortgage holders, but unemployment is rising, heightening the financial pressure on those affected.

Nearly half of all respondents have a mortgage, and 12% of mortgage holders consider themselves to be in mortgage stress, with a small number (2%) having been forced to sell their property due to the downturn. Although the term “mortgage stress” is subjective, a traditional and still widely used way to gauge stress levels is to look at whether a household is paying more than 30% of its income on housing costs (the established benchmark).

If you’re on a low income and paying one-third of it on home loan repayments, there won’t be much left over for your cost of living. However, if you have a moderate or high income, paying a third towards your mortgage may still leave you with plenty to live on (provided your source of income continues). That’s why the 30/40 rule is now the preferred measure of stress – restricting the 30% stress test to the 40% of lowest income households.

Of the respondents who have a mortgage, 39% pay more than one-third of their household income on mortgage repayments, and 57% of those with a mortgage (or 27% of all respondents) are taking advantage of the drop in interest rates to pay off their loan sooner.

For some people, the recession has actually made mortgage management a little easier. Said some members:

  • “The current economic climate has not had any real impact on me except it has allowed me to pay a substantial extra sum off my mortgage.”
  • “It sounds awful but the current economic conditions are helping us; we have good job security and as home prices and interest rates are down we have purchased an investment property. The combined repayments on our two mortgages now are not much higher than the single one was a few years ago with the higher rates.”

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