Pandemic triggers turnaround in the financial mindset of Australians

• More than 1.5 million borrowers have taken additional steps to help them manage their home loan repayments during Covid-19.
• Survey finds a mismatch between household income and savings with 4 in 10 Australian borrowers citing a decline in household income, yet 35% increasing their savings during the pandemic.
• Millennials are almost twice as likely as Baby Boomers to actively manage their finances during the pandemic, seeking better deals and making changes to optimise their savings.

HSBC’s Road to Refinance survey has revealed an acute behavioural shift among Australians in secure employment, with many increasing mortgage repayments to build a buffer against anticipated job losses, or refinancing a home loan to save on regular repayments.

“The pandemic has caused an almost complete turnaround in the financial mindset of many Australians. The alarming misfortune of those who have lost their jobs appears to have prompted others to take a long, hard look at their money habits,” said Alice Del Vecchio, Head of Distribution for HSBC Australia.

“We’re seeing Australians saving more and really building up their rainy-day funds. They’re also actively keeping an eye on the ultra-low rate environment, switching to a fixed rate, variable or a combination of both to save thousands and shave years off their mortgages,” Ms Del Vecchio said.

UNCERTAINTY FUELS UNEXPECTED SAVINGS BOOM

Australians have surprisingly saved more during the pandemic, despite the fact that 40 per cent of survey respondents have suffered a drop in income.

35 per cent reported that they were saving more than previously, creating a financial buffer in case of future job loss or cash stash that could be used to capitalise on future investment opportunities, for example.

“These behaviours have translated to our own customer base – with many using their savings to make additional payments on their home loans at a rate of almost double than usual,” said Ms. Del Vecchio.

It’s no surprise that spending habits have changed in lockstep with a pandemic-driven lifestyle, according to Del Vecchio: “It’s clear streaming exercises and the latest Netflix documentary have supplanted air travel and holidays.”

When it comes to spending, given the lockdown and movement restrictions in place it’s unsurprising that Australians - and particularly those in Victoria – spent more on food (36%) and utilities/internet (34%) and saved money on entertainment (57%), gym memberships (56%) and clothing (49%).

THE GREAT GENERATIONAL DIVIDE

HSBC’s research found Millennials (36%) are the greatest bargain hunters, keeping an eye out for better home loan deals to reduce their expenses and optimise their savings.

Indeed, the research reveals Millennials are actively taking steps to manage their home loan repayments during Covid-19 by signing up to repayment holidays, enacting their bank’s hardship clause or switching to interest only payments.

And of those who have taken up a repayment holiday, 79% continue to make loan repayments at a higher rate than their Gen X (48%) and Baby Boomer (31%) counterparts; so as not to ensure they fall too far behind.

While cuts to official interest rates aren’t the only way to save money, action taken by the Reserve Bank of Australia proved the main motivator behind refinancing for both Millennials (30%) and Gen X (29%) – whereas Baby Boomers (20%) were more likely to make the switch when their mortgage broker recommends it.

Having kids at home unsurprisingly has a big impact on finances. Australians with children under the age of 18 are more likely than those without to have taken further steps to manage their home loan repayments during the pandemic.

“Australians are really heeding the advice of the experts and building up their financial literacy. With invariably bigger loans, they’re refinancing more often and taking advantage of competitive offerings,” said Ms. Del Vecchio.