Home loan arrears highest in years, but no worries, says RBA
The Reserve Bank had a typically Australian response to home loan arrears rising today – no worries – thanks to the phenomenal chunk of Aussies blitzing mortgages ahead of schedule.
Reserve Bank of Australia’s head of financial stability Jonathan Kearns told the 2019 Property Leaders’ Summit in Canberra this morning that “an increasing share of housing borrowers are behind in their mortgage repayments” but he also revealed the percentage of Australians that are blitzing payments.
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“The share of banks’ housing loans in arrears is now back around the level reached in 2010, the highest it has been for many years. But arrears are still well below the level reached in the early 1990s recession,” he said, adding that Australia’s rate of arrears was “still relatively low internationally”.
He revealed that a phenomenal “over 99 per cent of housing loans are on, or ahead of, schedule”.
The vast majority of Aussie borrowers have prepayment buffers on their mortgages, according to his figures.
“Around two-thirds of borrowers have accumulated buffers of prepayments of their mortgage, and some others have other assets outside of their property,” he 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 even seemed to applaud the fact that the arrears rate was not too low: “Making loans involves risk, and banks are used to managing this risk. If the arrears rate was persistently very low, that would suggest that lenders were being too cautious in lending. In that world, some people who could almost certainly repay a loan would struggle to get one”.
Mr Kearns said weak economic conditions drove cyclical upswings in arrears.
“What we can see across Australia is there is a clear pattern of more loans going into arrears in locations where the unemployment rate is higher. Notably the unemployment rate has increased and income growth slowed in Western Australia and parts of Queensland with the end of the mining boom. These areas have seen larger increases in arrears.”
He said while housing arrears had risen, it was “by no means to a level that poses a risk to financial stability”.
“Several factors have been interacting to drive the rise in housing arrears. Economic conditions are undoubtedly part of the story. Weak income growth, housing price falls and rising unemployment in some areas have all contributed,” he said.
“But they have not acted alone, interacting with earlier weaker lending standards, and the more recent tightening in lending standards.”
He warned “the arrears rate could continue to edge higher for a bit longer”.
“But 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.”
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