One of the arguments often used to disprove any issues in the housing market is the fact that some households are paying well ahead of required repayments. For example in the recent RBA Bank Stability Report, they say “Outside of investor housing, household sector finances are currently less cause for concern. Household credit growth has remained moderate, because new lending for purposes other than investor housing has been more subdued and because existing borrowers are taking advantage of low interest rates to pay down debt more quickly than contractually required. The aggregate mortgage buffer – as measured by balances in offset and redraw facilities – has risen to almost 16 per cent of outstanding loan balances (more than two years’ worth of scheduled repayments at current interest rates). ““More broadly, households continue to save a greater share of their income than in the decade or so prior to the financial crisis. Households’ ability to meet interest payments on their loans is being aided by the low level of interest rates. However, while the debt-to-income ratio has been relatively stable over the past decade or so, especially once balances in offset accounts are netted off, it is high relative to its longer-run history.”
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.