Philip Lowe, governor of the Reserve Bank of Australia (RBA), has backed the concerns of regulators by shining a spotlight on the rising number of households that are a month away from missing a mortgage payment.
In his first major review of the financial system, Lowe focused on the growing number of households that have a buffer of less than one month’s mortgage payments, in contrast with the last review conducted under his predecessor, which saw risks abating.
The latest analysis shows just how unbalanced the housing market has become, and follows concerns from the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) about how the build-up of risks in the property market could lead to the orderly unwinding of prices.
Martin North, principal of Digital Finance Analytics (DFA), said it was about time the RBA woke up to the risks posed by the nation’s high levels of household debt and stagnant incomes. “This situation hasn’t fundamentally worsened in six months so it stands to reason what has changed is the RBA’s perception of the world,” North said.
Data from the DFA shows that the percentage of households that are cutting back on expenditure, dipping into savings, or using credit facilities to meet mortgage repayments has risen to 22%, following a series of out-of-cycle rate rises from the banks.
North said the number of households experiencing some level of financial stress would rise to 26% if there were a 50-basis-point rise. If rates were to rise another 100 basis points, the percentage of beleaguered households would rise to 31.1%.
Data published by the Big Four supports the RBA’s findings, noting that between 20% and 40% of mortgage holders with the Big Four are just a misstep away from missing a mortgage payment.
ANZ and NAB, which measure the percentage of mortgage holders who do not have buffers of one month or more, count 61% and 27.7% of their customers respectively in the non-buffer segment.
CBA and Westpac, which use a less stringent buffer measure to include any additional repayment and factor in offset accounts, place 23% and 28% of their customers respectively in the danger zone.
Annual results data from the banks show that the percentage of customers who do not have sufficient buffers has worsened by between 2% and 3% over the last 12 months alone.
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