Australia’s mortgage arrears have climbed back toward 2010 levels, but remain short of posing a threat to the financial system or households, a senior Reserve Bank of Australia (RBA) official said.
The number of borrowers falling behind in their mortgage repayments is still well beneath the levels reached in the early 1990s recession, as well as those in a number of other developed nations, said Jonathan Kearns, head of financial stability at the RBA.
“Housing arrears have risen, but by no means to a level that poses a risk to financial stability,” Kearns said in a speech to a property summit in Canberra yesterday. “Weak income growth, housing price falls and rising unemployment in some areas have all contributed.”
Kearns said arrears could edge higher “for a bit longer” as some of those economic drivers might not reverse in the near-term.
About 1 percent of household loans, which also include credit card and personal debt, are more than 90 days overdue, according to RBA data.
Australians amassed one of the world’s highest levels of household debt in a five-year property boom amid a combination of low interest rates, lax lending standards and supply shortage.
Prices have since tumbled, with Sydney’s down about 15 percent from the 2017 peak, as regulators tightened standards and banks curbed lending after an inquiry revealed widespread poor behavior.
A strong labor market has kept a lid on home-loan arrears as households have sufficient income to meet their commitments.
However, forward indicators are suggesting some moderation ahead for hiring and has the RBA worried enough to signal further easing after its first interest-rate cut in almost three years.
“Around two-thirds of borrowers have accumulated buffers of prepayments of their mortgage, and some others have other assets outside of their property,” Kearns said.
“Households with financial buffers can withstand some period of unemployment, but if that extends too long and depletes their savings, they risk falling into arrears,” he said.
“With overall strong lending standards, so long as unemployment remains low, arrears rates should not rise to levels that pose a risk to the financial system or cause great harm to the household sector,” he said.
The RBA is likely to lower interest rates again to drive increased hiring and boost households’ confidence that inflation would return to target.
The central bank made the comment in minutes of its June 4 policy meeting, when it eased the cash rate to 1.25 percent in the first reduction in almost three years. The report was released yesterday.
Commonwealth Bank of Australia updated its RBA forecast earlier yesterday and now sees two reductions — next month and in November — to take the cash rate down to 0.75 percent.
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