For those people on a low income, statistics coming from the Australian Bureau of Statistics report that home ownership has transported low income households in Australia from the poverty line over the last six years, and buffered the hard times where low income is temporary. With house prices currently down in many areas, now could be a good time to get your credit history checked and try to buy your own home, potentially becoming one of the ‘privileged’ in Australia who own their own home – even despite low income.*
By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repairs and www.fixmybadcredit.com.au.
According to the Australian Bureau of Statistics (ABS) in its article ‘Life on Struggle Street – Australians on low economic resource households’ home ownership can act as a buffer for people who experience periods of low income.
“While regular income is an important economic resource for many people, wealth in the form of bank accounts, shares, superannuation or property can be drawn upon to smooth and support consumption over time, including during periods of low income,” the ABS says in this article.
The information on low economic resource households was utilised from a larger article ‘Australian Social Trends March 2012’, released yesterday. This article draws on a wide range of data, to present a picture of current Australian social conditions.
Australian Social Trends March 2012 uses data from the ABS 2003–04 and 2009–10 Surveys of Income and Housing, and the ABS 2009–10 Household Expenditure Survey.
What seems apparent from the article is that the event of home ownership could potentially change a person’s life forever – particularly those people currently on a lower income, or those who expect to be on a lower income at some stage in the future (due to retirement, child-rearing etc).
We know the benefits of home ownership – the home owner has the opportunity to accumulate wealth outside their income through projected capital gain, and they also have the potential to borrow against the home in some instances.
The ABS puts this into perspective when deciding on what is considered a ‘low economic household’.
“The advantage of taking into account wealth as well as income is that it excludes those with high wealth who enjoy reasonable levels of consumption despite a low level of income. This approach is therefore more likely to capture people most at risk of experiencing economic hardship, than analyses of income alone,” the ABS article Life on Struggle Street – Australians on low economic resource households explains.
Home ownership lessens the risk of experiencing economic hardship.
“This disparity between people in low economic resource households and the rest of the population is even more pronounced when it comes to wealth. The average equivalised net worth of people in households with low economic resources in 2009–10 ($53,500) was one tenth of the average across other households ($509,800). After adjusting for inflation, the net worth of low economic resource households had not increased significantly since 2003–04, while the average net worth across all other households had increased by 29%.
“These data indicate that the disparity in both income and wealth between those in low economic resource households and the rest of the population had grown over the six years to 2009–10,” the article reports.
It seems in the past six years it has been more beneficial than ever for people on lower incomes to have owned their own home. But unfortunately with rising house prices and an increased cost of living, saving for the deposit and actually qualifying for the loan can be difficult. Then, the global financial crisis hit, and banks have been making it even harder ever since for people to get a home loan.
For those lower income owners who are lucky enough to qualify for a home loan, it is more vital than ever that their credit check comes back clear to be assured a loan.
A clear credit file ensures people have the best chance of obtaining a home at the most affordable interest rate.
So if people otherwise qualify for a loan, but have bad credit history which is holding them back, all may not be lost. They should talk to the team at MyCRA Credit Rating Repairs about potentially restoring their credit file. Call us on 1300 667 218 or visit our website www.mycra.com.au.
The picture painted by the ABS of many of those low economic resource households who can’t afford a home of their own or other investments is a rather grim one.
“Around a quarter (24%) of low economic resource households reported spending more money than they received most weeks, twice the rate of other households (12%). This gives an indication of the extent to which people, particularly in low economic resource households, may be forced to draw upon their limited assets or rely on credit from week to week simply to make ends meet,” the ABS says.
Low income households also would find it difficult to raise emergency money:
“In 2009-10, 43% of low economic resource households reported that they would not be able to raise $2,000 in a week for something important. In contrast, only 7% of other households reported being in this position.”
“A range of other indicators of financial stress were more prevalent among low economic resource households: 10% reported that they had gone without meals in the past 12 months due to cash flow problems, while 8% had resorted to pawning or selling possessions. By contrast, only 1% of other households had been forced to either of these lengths.”
Close to a third (31%) of low economic resource households reported that they had been unable to pay a utility bill on time in the past 12 months, and 20% had sought financial help from friends or family due to cash flow problems. This compares with 8% and 5%, respectively, among other households. One in ten (10%) low economic resource households were forced to seek assistance from welfare or community organisations, compared with 1% of other households,” the ABS says.
At this end of the scale, lack of access to cash can be a difficult cycle to get in to. Those people suffering with defaults or other negative listings on their credit file could be faced with high interest rates in an emergency, putting stress on an already struggling household. People in this predicament should talk to someone about the options of removing negative listings which shouldn’t be there, from their credit file as well.
Watch this short how-to video to find out how credit rating repair could help you.
* The opinions in this article should not be construed as financial advice. For expert advice on whether home ownership is right for you, contact a Finance Broker or Financial Adviser.
