Low interest rates are having effect

Low interest rates are having effect

Posted on Monday, April 13 2015 at 11:52 AM

The April St. George-Melbourne Institute Household Financial Conditions Report reveals that financial conditions for Australians have improved on a year ago, home renovations are at a 10-year high and renters are becoming big winners.

The quarterly St. George-Melbourne
Institute Household Financial Conditions Index
, which reports on the
key savings behaviours of households, has increased its value by 5.2 per cent over the past 12 months.

The index reveals how household balance sheet repair is very
evident with mortgage holders dropping debt by 5.9 per cent over the past 12
months. In addition, for almost 75 per cent of respondents, servicing debt is
below 25 per cent of after-tax income, indicating most Australians are not over
extending themselves.

St. George retail banking general manager Andy Fell says the low
interest rates we’ve seen in the past couple of years are assisting homeowners
to lower their debt quicker and get themselves into a better financial

“Australia’s love affair with the property market also shined through
this quarter, with low interest rates directing households to real estate as a
popular source of new savings.

“The findings show there was a 5.4-point lift over the quarter in
savings directed to real estate, making it the second preference after bank
deposits and perhaps signalling a trend in buying to invest, rather than to own.”

According to the index, households’ motivation behind savings is being
driven by holidays and travel (60 per cent) and ‘saving for a rainy day’ (57
per cent), which were the two most popular reasons for saving in the March

“We’re also seeing that Australians are continuing their trend to be a
nation of renovators, with 41 per cent indicating they’re saving for home
improvements and renovations, an increase of 7.6 per cent since December,” Fell

“This was the highest proportion since at least 2005, when records began.”

Chief economist for St. George Bank Besa Deda says that some of the big
winners this quarter were renters, who enjoyed a big jump in financial
conditions by 14.3 per cent.

“The findings indicate that renters could be reaping the benefits of
strong investor activity, which is limiting growth in residential rents.

“Rental vacancy rates are creeping higher across most capital cities,
suggesting renters are benefiting from a softening in rental conditions,” she

When it comes to state comparison, NSW, SA and QLD improved with leaps
and bounds compared to other states.

Key findings

  • The St. George-Melbourne Institute Household
    Financial Conditions Index
    fell marginally, down 0.2 per cent to 128.1 from
    December 2014 to March 2015. The index is now 5.2 per cent above its value a
    year ago.
  • Large falls
    over 7 per cent were recorded by those aged between 45 years and 64 years, and
    by those earning between $80,000 and $100,000. In contrast, a big rise was
    recorded by those who are renting (14.3 per cent). 
  • 34.3 per cent
    of Australian households hold mortgage debt, a slight decrease since December
    and a 5.9 per cent decrease over the year.  
  • Some 25.5 per cent of respondents reported a
    preference to invest their savings in real estate in March, up from 20 per cent
    per cent in December.
  • Two of the five
    states recorded decreases in their household financial conditions indices. The
    financial conditions index for Western Australia recorded the largest fall of
    13.5 per cent, followed by a decrease of 7.0 per cent in Victoria. On the other
    hand, the household financial conditions indices for New South Wales,
    Queensland and South Australia reported increases over 6 per cent.
  • More respondents were
    motivated to save to “improve/renovate their own home” up from 34.2 per cent in
    December to 41.8 per cent in March. This was the highest proportion since the
    survey began in 2005. Fewer respondents were motivated to save to “buy or
    put a deposit on house” – a decrease to 13.9 per cent in March from 15.8 per
    cent in December.

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