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Homeowners’ drastic solution to pay loans

Written by on May 9, 2024

An alarming amount of mortgage holders are resorting to drastic measures, including selling their homes and personal belongings to cope with the financial strain of rising home loan repayments.

Almost half of Australian mortgage holders have considered selling their home, personal items, valuables, investments, car or business to offset the strain, according to new research from Canstar.

A survey of more than 800 mortgage holders found the consideration had turned into reality for 23 per cent of all borrowers.

The most common sacrifices made by borrowers have been furniture, electronics and collectibles, with nearly 32 per cent selling these items to alleviate financial pressures.

Family homes are the second most common asset sold, with 28 per cent of mortgage holders choosing to relocate and 22 per cent choosing to downsize or move in with family members.

A further 14 per cent chose to sell their homes and rent rather than pay a mortgage.

One-fifth of mortgage holders included in the data had pawned off jewellery and other valuables in a bid to pay the rising repayments.

Meanwhile, 20 per cent have turned to getting additional income.

The Canstar research also found 19 per cent of respondents had resorted to selling investment properties or other investments such as shares, ETFs, commodities or cryptocurrency to maintain financial stability.

Just 12 per cent chose to sell their vehicles to get by, while 4 per cent of respondents sold their business to cope with the financial strain.

“Even though the banks report only a relatively modest increase in home loan arrears, the strain of higher rates is taking its toll on a group of borrowers, with half considering selling belongings and 46 per cent of that group – which is close to one-quarter of all borrowers – following through and actually doing it,” Canstar finance expert Steve Mickenbecker said.

He said job loss, family break-up and even illness could threaten financial future, while repayments had risen by 62 per cent since May 2022.

“Coupled with high inflation (this) creates a big enough event for many borrowers to trigger a response like selling assets to make ends meet,” Mr Mickenbecker said.

“This is especially true for those who bought for the first time in the last four or five years.”

Mr Mickenbecker said financial crisis was a time for mortgage holders to re-evaluate their priorities, and parting with possessions could be a “perfectly logical reaction” if it meant holding onto the home.

However, he said it was worrying that people were choosing to sell their homes as a last resort.

“This is long-term damage being done and the real pain of high interest rates,” he said.

“We can only hope that borrowers have sought out advice and that they are genuinely at the point of last resort, as there are steps that can be taken before they give up the house.”

Mr Mickenbecker urges mortgage holders to consider refinancing to a longer- term contract or seeking short-term relief with lower repayments or an interest-only loan.

But he warns repayment relief measures could end up costing borrowers more interest and take longer to repay.

He said some borrowers might not realise they had a redraw facility on their loan.

This allows them to draw against any extra contribution to help cover the repayments.

“Borrowers who are considering selling their house would do well to seek advice from the government’s Financial Counselling Australia via free National Debt Helpline,” Mr Mickenbecker said.

“Together with the borrower they may be able to find a better way and see hope on the horizon.”