There’s a smoke screen obscuring a very nasty picture in Australia right now

Those with financial stress might have a job – and sometimes two – but their incomes are not sufficient to pay their ballooning mortgage. Picture: istock

The 2023 slump driven by interest rates and political mistakes has inflicted serious mortgage problems to well over a million Australians in ways that I have never seen before.

Normally when the Reserve Bank lifts interest rates to smash the economy as part of a drive to reduce inflation the outcome is predictable. Companies and overborrowed governments retrench labour, boosting unemployment; house prices and other property values fall; and as the economy tanks, enterprises simply can’t raise prices and inflation comes down.

The community recognises those who have been hit because they are out of work. In 2023 the suffering is again severe but everything else is different. At least to date, the Reserve Bank’s interest rate rises have not dramatically increased unemployment and there remains a shortage of labour in many areas. House prices have eased in some places but overall have held their ground. Larger enterprises are still raising prices and governments keep spending.The affluent keep spending. These unusual events become are a smoke screen that obscures a very nasty situation for large numbers of Australians.

Those with financial stress might have a job, and sometimes two, but their incomes are not sufficient to pay their ballooning mortgage or rent, plus energy and other costs. In other words, they can’t make ends meet and there is deep community anger.

Among those under mortgage stress, the hatred of Reserve Bank governor Philip Lowe is deep because in their minds their suffering has been brought on by his incompetence and lack of empathy. Many also blame Prime Minister Anthony Albanese simply because he hasn’t sacked Lowe.

Reserve Bank governor Philip Lowe. Picture: NCA NewsWire / Christian Gilles

Those familiar with the way nations work know these are unfair sentiments but they are widespread. Around the world inflation was initially created my chronic shortages and higher energy costs which were particularly severe in Australia because of a botched renewables program.

What has made Australia unique was a massive bank lending spree to fund dwellings on the basis of token interest rates reinforced by the assurance from Lowe that rates would not increase until 2024. Governments boosted rentals by restricting the supply of rental housing by giving too much power to tenants and boosting the costs of building via complex approval bodies.

It only now that the momentum of wage increases is starting to emerge but that further increases in inflation and interest rates. There is a widely held expectation that interest rates will fall next year and I hope that is right, but costs continue to rise and big spending by state and local governments together with the commonwealth’s industrial relations measures combined with the botched renewables strategies means it will be very difficult to get the inflation down to the Reserve Bank’s target of two to three per cent.

So, what can people with mortgage stress do in these situations? All the normal solutions are widely canvassed including shopping around for value, cutting expenditure on cafes and other discretionary items, taking on extra jobs, seeking help from parents and immediate family and renting a room.

Those that have been under mortgage stress for some months have already embraced those solutions to the best of their ability. The ranks of those under mortgage stress currently total around 1.4m but the number will rise sharply as more fall into this horrible situation. My suggestion to those in mortgage stress is to look around the “room” to determine whose faces have the most anguish – that is where you put pressure.

Governments, particularly state and local governments, have feathered their nests and they seem to have no concept that they are a big part of the problem. They have no idea what they have done and are still doing to boost inflation and interest rates. They can’t help you.

But the bankers “in the room” know their over-lending created part of the problem and they know that their reputation in the community is on a knife edge. They do not want to be tarred and feathered in public by throwing Australian families out into the street as they announce big profit numbers.

Try going to your bank with a realistic proposition showing how much you can pay. Picture: istock

Many under mortgage stress are tempted to throw in the towel and sell the house, but that will not help because rents are so high. Accordingly, try going to your bank with a realistic proposition showing how much you can pay. If the attempt is genuine, most banks will put the loan on an interest only basis and might go further. You can also go to the National Debt Helpline.

But go further. Encourage your children to show you how to play the social media game and alert the television and radio stations if your bank plays rough. Again, remember that the very large profits that the banks “earned” during their housing lending spree are going to be highlighted if banks throw people who are making a genuine effort out into the streets.

And there is a small sliver of good news. As a result of the lending spree many people got a foot into the residential property market which would never have otherwise been available to them. Property values may fall in short term but, if you can hang on, values will recover because building costs have risen spectacularly which means that you have probably bought “bricks and mortar” at a favourable price – in time inflation will give you equity. Hanging on is not an easy game for those under mortgage stress to play, but don’t be afraid to link with friends and family to put pressure on the people “in the room” who looks the most anguished: banks.