Ok, the banks are bastards!
Now we’ve got that out of the way, let’s examine our culpability in the financial mess that we, as borrowers, currently find ourselves in.
Before the RBA and then the Commonwealth Bank put up interest rates last week, the Wesley Mission released a NSW based report suggesting one in five people were now skipping meals because they were so financially stressed.
And it’s not an isolated issue; financial counselling services throughout the country are reporting more inquiries than ever before.
So how did we get to this point?
Too much debt and heavy debt obligations leave little room to move if essential bills start to rise.
The experts i.e. bank public relations departments, keep telling us we have ‘lending standards’ in Australia. Commonwealth Bank and Westpac went so far to produce reports dismissing claims of housing bubbles and borrowers in stress.
Yet there’s no shortage of people staring down the barrel of financial oblivion.
Clearly the borrowing standards aren’t as tight as the lenders would have you believe, but given our disrespect and distrust for the banks, why do we happily accept their calculations on how much they think we can borrow?
Any lending calculator should be immediately pushed to the worst case scenario and that’s not 1% above current rates, that’s asking how bad would things look at double digit mortgage rates?
Furthermore, utility bills are never static, they are ever increasing and this is never factored in by the banks when calculating mortgage stress.
In spite of any financial modelling we’re shown, we should then conduct our own stress tests, with much higher rates and much higher food and utility costs. If the worst does come, then we’re not left vulnerable.
Remember, a bank’s primary concern is how much your house is worth, and how much they could sell it for if you defaulted.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. If you’d like help with your financial future, we ‘re one of only six certified fiduciaries in Australia.
