I noted last week how Australian mortgage borrowers have been hit especially hard by rising interest rates, recording one of the largest rises in average mortgage rates in the world:
Bank for International Settlements data to the September quarter of 2023 also showed that principal and interest debt repayments as a share of household income have risen far more in Australia than in other Anglo nations:
The above data reflects the fact that Australia has one of the highest shares of variable rate mortgages in the world.
This means that the 4.25% of interest rate increases by the Reserve Bank of Australia (RBA) have been passed onto mortgage holders far quicker than similar rate hikes from other central banks.
Justin Fabo at Antipodean Macro published the below chart showing that the average interest rate to assess serviceability on new housing loans used by lenders in Australia reached 9.22% in Q4 2023:
Fabo also shows that “high assessment rates have contributed to the low share of new housing loans in Australia being written for borrowers with a very high debt-to-income ratio of at least 6 times”:
The above data suggests that lenders are being fairly prudent with their lending.
It also helps to explain why the growth in new mortgage commitments has softened:
The strong rebound in house prices is even more remarkable given the above, since it has occurred alongside the collapse in borrowing capacity:
Clearly, the tailwinds from the record 680,000 increase in Australia’s population in 2023 has outweighed the headwinds from soaring mortgage rates.
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