Main drivers of increased arrears identified
The Reserve Bank of Australia (RBA) has identified challenging macroeconomic conditions and a modest ageing of the loan pool as the primary drivers behind the recent increase in arrears.
However, the RBA said that financial stability risks remain contained, with highly leveraged borrowers – the households most at risk – representing a relatively small share of total housing lending, with very few loans estimated to be in negative equity.
Despite ongoing budget pressures, which are expected to persist, inflation moderation is anticipated to provide some relief over time.
In the RBA’s analysis of recent drivers of housing loan arrears, it stated that the expected gradual easing of the labour market will pose challenges for households facing job losses.
Consequently, banks project a slight increase in housing loan arrears, aligning with the RBA’s analysis. Still, nearly all borrowers are expected to continue servicing their debts, even if budget pressures remain elevated.
The central bank is confident that banks are well positioned to handle increased loan losses, supported by previous provisioning, strong profits, and solid capital positions. Additionally, the very low share of loans in negative equity offers further protection against financial instability.
“Housing loan arrears rates have increased from low levels since late 2022, with banks expecting them to rise a bit further from here,” said RBA analysts Ryan Morgan (pictured above left) and Elena Ryan (pictured above right). “Understanding what has been driving this increase is important for the RBA’s assessment of risks to financial stability and the economic outlook, and we find that the main drivers of the recent increase in arrears have been challenging macroeconomic conditions and a modest ageing of the loan pool.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
