Record low interest rates are taking effect, writes Peter Bell.

The April St George-Melbourne Institute Household Financial Conditions Report reveals that financial conditions for Australians have improved on a year ago, signalling lower interest rates are taking effect on the economy.

The quarterly St George-Melbourne Institute Household Financial Conditions Index, which reports on the key savings behaviours of households, has increased its value by 5.2 per cent over the past 12 months.

The Index reveals how household balance sheet repair is very evident, with mortgage holders dropping debt by 5.9 per cent over the past 12 months. In addition, for almost 75 per cent of respondents, servicing debt is below 25 per cent of after-tax income, indicating most Australians are not over-extending themselves.

The research signifies that the low interest rates we’ve seen in the past couple of years are assisting homeowners to lower their debt quicker and get themselves into a better financial position.

Australia’s love affair with the property market also shined through this quarter, with low interest rates directing households to real estate as a popular source of new savings.

The findings show there was a 5.4 point lift over the quarter in savings directed to real estate, making it the second preference after bank deposits and perhaps signalling a trend in buying to invest, rather than to own. According to the Index, households’ motivation behind savings is being driven by holidays and travel (60 per cent) and ‘saving for a rainy day’ (57 per cent) which were the two most popular reasons for saving in the March quarter.

We’re also seeing that Australians are continuing their trend to be a nation of renovators, with 41 per cent indicating they are saving for home improvements and renovations, an increase of 7.6 per cent since December. This was the highest proportion since at least 2005, when recording began.

One of the big winners this quarter were renters who enjoyed a big jump in financial conditions by 14.3 per cent.
The findings indicate that renters could be reaping the benefits of strong investor activity which is limiting growth in residential rents.

Rental vacancy rates are creeping higher across most capital cities, suggesting renters are benefiting from a softening in rental conditions.

When it comes to the state-by-state comparison, NSW, SA and QLD improved with leaps and bounds compared to other states, QLD shining the most with conditions improving over 6 per cent from December to March 2015.

The St George-Melbourne Institute Household Financial Conditions Report is a national survey of 1200 respondents to arrive at a summary of key savings behaviours of households each quarter. The above information was gathered in March 2015; further quarterly results will be released in June 2015. Call 3235 6701 to discover how St George can help you get into a better financial position.