The latest AMP NATSEM report shows that Australians are getting into significant debt in order to own their own home, raising concerns about sufficient insurance levels.
The report, entitled ‘The Great Australian Dream – Just a Dream?’, examined housing affordability and housing stress. It found that median house prices grew 147 per cent to $417,000, while median after-tax incomes only increased 50 per cent to $57,000 from 2001 to 2011, pushing the price to income ratio from an affordable 4.7 to what the report believed was a severely unaffordable 7.3 today.
‘For those who do manage to purchase a house high house prices mean taking on very high levels of debt that will constrain their lifestyle for many years into the future,’ the report stated.
According to the report, nearly one in ten buyer households spend at least half their after-tax income on housing, with the conclusion being that these households are at serious risk of financial difficulties, especially if family or economic circumstances were to change.
AMP Financial Services Managing Director, Craig Meller, said households that are in housing stress are devoting a large portion of their after-tax income to housing costs.
“Buying a home and paying off the mortgage is putting Australians under considerable stress. It can be a struggle to get into the market and when people do, many have little funds left over for essentials, let alone a family holiday,” he said.
However, the level of debt being accrued is not matched by an increase in life insurance take-up. The Association of Financial Adviser’s (AFA) ‘Risking Everything’ research found that only 52% of Australians held any form of life insurance. The main trigger for the take-up of insurance was the purchase of a house/taking out a mortgage (24.9%).
The research also found that those people who were insured but did not have an adviser estimated that just under $400,000 was an adequate level of cover. With the average first home buyer mortgage sitting at $280,000 this raises concerns about how these homeowners would cope even with some level of cover.
