Despite the rate of mortgage-holders falling behind on their repayments at an all-time high, the RBA has said that it is not concerned about further mortgage stress.
In a speech made at the FINSIA gathering, RBA deputy governor Guy Debelle noted that newer loans have stronger regulations and older mortgages are partly to blame for the rising number of Australians missing repayments.
As such, the deputy governor does not predict arrears to continue to rise as lower rates of credit ease the burden on mortgage-holders.
“The mortgage arrears rate, at 1 per cent, is low by both historical and international standards. Arrears in the US peaked at around 10 per cent in the financial crisis,” Mr Debelle explained.
Despite the Reserve Bank cutting rates three times this year, Mr Debelle said arrears have increased from 0.7 per cent to 1.8 per cent.
“This is a significant rise and associated with financial stress for a number of households. But it is still not that high given the economic circumstances,” Mr Debelle said.
Western Australia and the Northern Territory have been affected more than other regions of Australia due to high unemployment and falling house prices, Mr Debelle explained. However, he believes the new regulation will help lower the risk of arrears.
“Tighter lending standards should lead to lower arrears, but this can be hard to discern in the raw data. One reason is that borrowers’ circumstances tend not to change so quickly that they fall behind on their repayments soon after taking the loan out, so newer loans tend to have lower arrears rate than older loans,” Mr Debelle explained.
In all states, increases in the share of housing loans that are 90-plus days in arrears have mainly been driven by loans remaining in arrears for longer rather than an increase in new loans entering arrears.
This is consistent with the softer housing market, the deputy governor said.