Mortgage broker forced to become part-time Uber driver due to cost-of-living and housing crisis

A recorded conversation with an Uber driver reveals the extent of Australia’s cost-of-living crisis – and indicates the worst is yet to come.

A recorded conversation with a mortgage broker forced to drive an Uber part-time because his business is “dead quiet” points to darkening economic storm clouds.

Financial market strategist Jessica Amir last night shared the stark exchange she had with a Sydney ride-share driver named Tim.

The man operates his own mortgage brokerage but has been forced to supplement his income because he’s “turning people away” who apply for home loans they can no longer service.

A mortgage broker has been forced to drive an Uber part-time because his business is "dead quiet".

Economics firm PropTrack estimates borrowing capacities – that is, how much a prospective homebuyer can get from a bank – have plunged by a little more than 30 per cent in the past year.

That’s not just because of higher interest rates and continually rising property prices, but due to a finance quirk many Aussies likely don’t understand.

The truth about interest rates

The Australian Prudential Regulation Authority – the country’s lending watchdog – requires banks to add a three per cent buffer to their mortgage interest rates to protect borrowers against future cost blowouts.

A growing chorus of experts are calling on APRA to lower that serviceability buffer, including former Australian Securities and Investments Commission chairman Greg Medcraft, who argued it should fall as the official cash rate rises.

ANZ chief executive Shayne Elliott yesterday said the three per cent buffer “doesn’t allow banks to lean in and support” those hoping to buy a home.

Regulations are pricing everyday Australians out of the property market, Mr Elliott told The Australian, adding that home loans have become “the preserve of the rich”.

“If you want a loan you have to be better off, and essentially rich,” he said. “There’s big social consequences and political consequences.”

Retail mortgage interest rates are currently sitting at about six per cent thanks to 13 hikes by the Reserve Bank in almost past 18 months.

As a result, when someone applies for a home loan, they’ll be assessed on whether they can make repayments with interest of at least nine per cent.

“I have so many borrowers come to me, they’re saving up money, and [saying], ‘OK, let’s go borrow some money’ but they can’t service it,” Tim tells Ms Amir in the video.

“Their borrowing capacity has dropped down really badly.

“I’m telling you, most of the lending institutions at the moment are looking at [an interest rate] of nine per cent – minimum.”

Getting a home loan has become much more difficult in the past year. Picture: NCA NewsWire/Tertius Pickard

The serviceability buffer has gone from two per cent to three per cent in recent years, with the last 50 basis point lift coming in October 2021.

“More than one-in-five new loans approved in the June quarter were at more than six times the borrowers’ income,” APRA chair Wayne Byres said at the time.

“While the banking system is well capitalised and lending standards overall have held up, increases in the share of heavily indebted borrowers, and leverage in the household sector more broadly, mean that medium-term risks to financial stability are building.”

That prediction has rung true in the time since, with worsening cost-of-living pressures coupled with interest rates that are at least 4.25 per cent higher.

And as Ms Amir pointed out, the RBA and major lenders believe the full impact of rising interest rates is still yet to be felt.

Mortgage holders under pressure

Before the cash rate began rising, consumers had enjoyed 12 years of decreases that took it to an all-time low of 0.1 per cent.

It now sits at 4.35 per cent, with the RBA Board deciding last week to lift it again by 25 basis points.

The RBA’s rapid run of rate rises has put extraordinary pressure on household budgets, with average mortgage repayments rising from $2570 in April 2022 to a staggering $4151, according to financial comparison website Canstar.

That equates to an additional $1581 per month on average or an eye-watering $18,972 more per year.

The number of mortgage holders now behind on their repayments by between 30 days and 90 days is 47 per cent higher year-on-year.

Research conducted by financial comparison site finder.com.au found 35 per cent of borrowers are struggling to meet their monthly repayments.

Just 29 per cent of survey respondents believe now is a good time to buy a home, the site also found, which has dropped from almost 70 per cent in early 2021.

Around the same time, those Aussies yet to buy their own home expected to be able to do so within five-and-a-half years. That figure now sits at 8.3 years, the research found.

“Rising costs across the board have made homeownership even more of a dream for many,” Graham Cooke, head of consumer research at Finder, said.

“The threat to those with a mortgage is particularly acute – nearly two-in-five are struggling to pay. It’s no wonder that most Aussies don’t think now is the time to buy.”

Big banks aren’t too concerned at the moment, given mortgage arrears remain historically low, but CBA boss Matt Comyn conceded some of the bank’s customers are “under pressure”.

“We are very conscious that many Australians are feeling under pressure in the current environment,” Mr Comyn said.

“While some remain well positioned, we recognise that others are finding the higher cost of living very tough. Our customers are continuing to take practical steps to navigate through a period of tighter household finances and we are here to help them.

“As a result, we have seen a modest increase in consumer arrears over recent months. Our balance sheet strength means we are well positioned to support those customers who need it.”

Worsening cost-of-living pressures are pushing Aussies to the brink.

The comments came as Mr Comyn announced the big bank’s September quarter profit of $2.5 billion, which is a big number but is just one per cent higher over the corresponding period and flat compared to the quarterly average last financial year.

Social cohesion falling

Rate rises, the cost-of-living crisis, global conflict, worsening housing affordability and fears about the state of the economy have put pressure on the country’s social fabric.

Released today, the Scanlon Foundation Research Institute’s 2023 Mapping Social Cohesion report shows a declining number of Aussies believe this is a “land of opportunity”.

Now in its 17th year, the study shows social cohesion is at its lowest level since 2007 and has slumped 13 per cent since 2020.

Almost half of people see economic pressures as being the most pressing concern for the nation and 84 per cent agree the gap between the rich and the poor is too wide.

Trust in the Federal Government has slumped on the back of cost-of-living pressures and economic uncertainty. Picture: NCA NewsWire / Damian Shaw

Trust in the Federal Government has collapsed to 36 per cent this year and one-in-three people believe leaders “abuse their power” all or most of the time.

“Heightened concern about economic inequality and social justice have seen more Australians questioning governments and their ability to do the right thing by those who are struggling,” report author James O’Donnell said.

“Both of these things then contribute to people feeling less of a sense of connection to Australian values and society, and less pride in how we’re tracking as a nation.”

Aussies worried about what’s to come

When it comes to the outlook for the economy and personal financial circumstances, Australians are worried, according to EY analysis.

Not since the start of the Covid pandemic – and the aftermath of the Global Financial Crisis before that – has there been such a dramatic plunge in sentiment.

“Consumers’ views on future financial and economic conditions over the next 12 months fell far below their long-run averages from early 2022,” EY said in a recent report.

That grim view of what’s to come is likely driven by the circumstances facing many Aussies right now, with more and more households relying on credit cards to make ends meet.

Credit reporting agency Equifax reported a seven per cent increase in credit card applications in the September quarter compared to the same three-month period in 2022.

It coincided with a surge in the number of people behind by more than 90 days on payments, up by 19 per cent year-on-year.

And the big banks have hiked interest rates on credit cards in recent months, meaning the debt hanging over many is getting worse.

In August, CBA lifted the rate on its cheapest card by 1.25 per cent to 20.99 per cent while ANZ tacked an extra 1.25 per cent on its low-rate card in September.