Luci Ellis, assistant governor at the Reserve Bank of Australia, has urged lenders to closely monitor “pockets of potential stress” in the nation’s $1.5trn mortgage market, warning that lower-income households were carrying hefty debt loads.

After Commonwealth Bank of Australia (CBA) reported a spike in mortgage arrears in Western Australia last week, Ellis said stressed areas needed closer monitoring, noting that “it is rarely the median borrower who defaults [as] risk comes from the tails of the distribution”.

Although Ellis repeated the Reserve Bank’s belief that most of Australia’s bigger mortgage debts were held by higher income households, she added that lower-income households tended to have large amounts of debt relative to their incomes.

“Sometimes this is because they have temporarily low incomes, but overall it does speak to the need to be aware of pockets of potential stress within a more ­benign overall picture,” she said at a conference in Melbourne last week.   

Ellis added that most “other” property debt (ie mortgages for property other than primary residences) was far more likely to be held by high-income earners than owner-occupier debt was.

A spike in lending to investors over the past six months has spurred CBA to take selective action, including increasing interest rates, turning away customers from other banks trying to refinance, and stripping the benefits of negative gearing from some loan serviceability calculations.

CBA claimed it was taking steps to ensure that investor lending growth remained below APRA’s 10% annual growth cap. 

Other banks have followed suit and Morgan Stanley warned last week that the crackdown on the reinvigorated investor market would slow the housing market this year.

Despite analysts commending CBA’s $4.9bn first-half profit, the bank increased provisions in Western Australia to shield against “hot spots,” such as mining towns, after revealing that mortgage arrears in the state were running at almost twice the rate of its overall $464bn home loan book.