David Scutt| Business Insider| 20 February 2018
Australian household debt has increased and wage growth remains weak, but that’s not yet led to a substantial pickup in financial stress.
And that includes households with a mortgage, be they owner-occupiers or investors.
That’s the concise view of Michelle Bullock, Assistant Governor of the Reserve Bank of Australia (RBA), who painted a rosier view of Australian household finances compared to other more pessimistic economic commentators in a speech delivered today. Bullock admitted that while pockets of financial stress do exist, they’re small and relatively stable in early 2018.
When it comes to those owner-occupier households with a mortgage, Bullock said there are currently few signs of a substantial increase in stress levels, pointing to a number of various indicators such as mortgage arrears, personal insolvencies and mortgage repayment buffers in her speech that suggest it’s well contained.
Here’s the current proportion of non-performing home loans in Australia.
This shows a significant and growing proportion of owner-occupier borrowers are currently ahead of their repayments.
“My overall interpretation of these myriad pieces of information is that, while debt levels are relatively high, and there are owner-occupier households that are experiencing some financial stress, this group is not currently growing rapidly,” she says.
“This suggests that the risks to financial institutions and financial stability more broadly from household mortgage stress are not particularly acute at the moment.”
As for housing investors, Bullock says the risks to financial stability are “probably a bit different from those associated with owner-occupier debt. Investors tend to have larger deposits, and hence lower starting loan-to-valuation-ratios”.
“They often have other assets, such as an owner-occupied home, and also earn rental income. Higher-income taxpayers are more likely to own investment properties than those on lower incomes, so may be better able to absorb income or interest rate shocks.”