Australia Mortgage Arrears Rise to 2010 Highs, RBA's Kearns Says
Australia Mortgage Arrears Rise to 2010 Highs, RBA's Kearns Says
(Bloomberg) -- 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 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 Tuesday. “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 mightn’t reverse in the near-term. Around 1% 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% 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,” said Kearns. “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.”
“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.
--With assistance from Jason Scott.
To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net
To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Chris Bourke, Peter Vercoe
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