Australian households are currently spending a record share of their income servicing debt repayments:
Data from the Bank for International Settlements for the September quarter of 2023 shows that principal and interest debt repayments as a share of household income have risen far more in Australia than in other Anglosphere nations:
The sharper increase in debt repayments reflects the fact that variable mortgages make up a much larger share of Australian loans than elsewhere in the world.
Accordingly, increases in official interest rates were passed on much faster to borrowers in Australia than in most other nations.
Gareth Aird, head of Australian economics at CBA, estimated that more than 250,000 households are yet to transition to variable-rate home loans over the next 18 months.
In turn, their mortgage repayments are set to rise sharply, even if the RBA keeps the official cash rate on hold.
“The message from the mortgage fixed-rate rollover is that the average outstanding mortgage rate will still climb, even with the RBA on hold”, Aird told The Australian.
Aird added that while this transition to higher variable mortgage rates doesn’t not pose a financial stability risk, it will create another headwind for household consumption.
Jarden chief economist Carlos Cacho estimated that around 480,000 of 760,000 borrowers that were scheduled to roll off fixed-rate loans over the four years to mid-2026 had done so.
That still leaves about 280,000 mortgage holders, or just under 40%, yet to make the switch.
Therefore, the average interest rate paid on Australian mortgages will continue to rise until the RBA commences its easing cycle, most likely in the second half of the year.
