The RBA has flagged investors as an area to monitor in its bid to keep tabs on financial stress
The average household mortgage debt-to-income ratio rose to around 140% at the end of 2017 from around 120% in 2012. Despite that figure, the RBA doesn’t appear to be ringing any alarm bells.
“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,” said RBA assistant governor Michele Bullock during a speech at Informa’s Responsible Lending and Borrowing Summit in Sydney on Tuesday (20 February).
“This suggests that the risks to financial institutions and financial stability more broadly from household mortgage stress are not particularly acute at the moment.”
She said the rise in mortgage debt-to-income is “not really surprising” given historically low interest rates that have allowed households to service higher levels of debt.
But she did acknowledge the difficulty around getting an accurate picture of financial stress due to the myriad of ways of measuring it and the time delay that often comes with the release of comprehensive surveys such as HILDA (Household, Income and Labour Dynamics in Australia).
For instance, the 2016 data in the latest HILDA survey indicates that financial stress for owner-occupiers with mortgage debt has not changed much over the past decade, and is actually lower than in the early 2000s.
In 2014/15, around 11% of the adult population, or just over two million people, had at least one investment property and around 80% of those were geared, according to ATO data.
Most of those investors own just one investment property but an increasing number own multiple properties. There has also been a marked increase in the share of geared housing investors who are over 60.
“These factors do not necessarily increase the risk of financial stress but they bear watching,” she said.
Another flag Bullock raised was the large proportion of interest-only loans due to expire between 2018 and 2022. Some of those borrowers may not be able to meet current lending standards for extending their IO repayments, but might find the step-up to P&I difficult to manage, she said.
She reiterated the importance of prudent lending standards to keep the financial system stable and household borrowing in check.
The risks to financial stability remain low, she said, but the RBA will be keeping an eye on its developments.
