High income vulnerable to mortgage stress

A new report by ratings agency Standard & Poor’s found that not all mortgage stress is being borne exclusively by lower income borrowers.

“In our opinion, for middle-to-higher income earners, the income characteristics of borrowers is another key factor that may influence mortgage affordability, possibly even more so than living cost assumptions,” the report read.

For middle-to-higher income earners, we believe that the Henderson Poverty Index (a measure widely used by lenders in Australia to estimate living costs to qualify borrowers for housing loans) does not reflect these borrowers’ typical lifestyle choices and resulting costs of living.

The report found that any changes to income could have a much more significant impact on mortgage affordability and stress in the middle-to-higher income borrower categories than rising living and/or interest costs.

These borrowers tend to have a greater component of variable income in the form of incentives, bonuses, commissions, and investment income.

Source: The Advisor

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