In addition to explicitly warning on household debt (covered on Thursday), the Reserve Bank of Australia’s (RBA) bi-annual Financial Stability Review (FSR) contained an alarming section on the high degree of interest-only borrowing by Australian home buyers. Below are the key extracts.
Interest-only (IO) loans account for a sizeable and growing share of total housing credit in Australia, now representing around 23 per cent of owner-occupier lending and 64 per cent of investor lending (Graph B1). IO lending has the potential to increase households’ vulnerability in part due to the higher average level of indebtedness over the life of an IO loan compared with a regular principal-and-interest (P&I) loan.
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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.
