Urban Research Centre Mortgage Distress Report

The Experience of Mortgage Distress in Western Sydney

Mortgage distress: Study uncovers the real pain of following the ‘Great Aussie Dream’

Download the UWS Urban Research Centre Mortgage Distress Report (PDF, 580 KB)

A study of home mortgage distress in Western Sydney has found the government and finance sector is grossly under estimating the social impact of the global financial crisis as people take extreme measures to hold onto the dream of owning their own home.

In the qualitative study conducted over the past 12 months, the University of Western Sydney’s Urban Research Centre uncovered tales of desperate measures as households do everything possible to meet their loan repayments.

“Borrowers will go to extraordinary lengths to maintain their mortgage rather than forego the Australian dream of homeownership,” says lead author and Director of the Urban Research Centre, Professor Phillip O’Neill.

“Participants in the study revealed how they have cut back their weekly outgoings, even on the most basic items – for a diet of basic rice in one instance – rather than default on their mortgage.”

The study questions the dominant view of regulators and financial experts that Australia has come through the global financial crisis relatively unscathed.

“Australia boasts that it survived the global financial crisis without major damage to its economy, nor to any of its major financial institutions,” says Professor O’Neill.

“Yet the self-congratulators ignore the extreme difficulties that have been faced by many households who have struggled to meet their mortgage repayments in recent years.”

Professor O’Neill says many households with mortgage commitments have no spare financial capacity to cope with unexpected jolts to their lives.

He says the key triggers of mortgage distress are loss of income, sickness, the birth of a child or family breakdown.

Participants in the study said when they became financially stressed, banks and other financial institutions ignored their problems.

“People told us lenders offered them poor support and inadequate advice services to help them through their difficulties or to ease them out of their mortgage contracts,” says Professor O’Neill.

“In one case, a distressed borrower reported being encouraged by her bank to build her credit card debt to extraordinary levels rather than default on the mortgage contract.”

The study recommends better assistance to mortgage borrowers including third party advice at the time of signing a mortgage contract, and an ombudsman-style service to provide impartial advice at the first sign of financial strain.

“Households need to have the best possible advice on how to negotiate the options available to them when they are experiencing mortgage distress, including a gracious exit from the mortgage contract,” says Professor O’Neill.

“In some cases people may be better off financially and emotionally if they let their mortgage go - let go of the dream of owning their home - and rent a house.”

Download the UWS Urban Research Centre Mortgage Distress Report (PDF, 580 KB)