Australian households continue to be
resilient in the face of aggressive interest rate rises and the high cost of
living - though a small but growing number of borrowers are experiencing
financial stress.
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The Reserve Bank says less than 1
percent of owner-occupied housing loans are 90 days or more in arrears with
just 0.5 percent estimated to be in negative equity, where an outstanding loan
exceeds the value of a property.
In its latest Financial StabilityReview released today, the RBA says the number of borrowers whose mortgage
repayments and essential living costs exceed their pay packets remains at
5 percent.
“In addition to cutting back on
their spending to mostly essential items and trading down in quality for some
goods and services, these households have had to make other difficult
adjustments to continue servicing their mortgages,” the bi-annual review says.
“These include drawing down on
liquid savings, selling assets and working additional hours.”
However, the review says while
“pockets of stress” remain,
the “vast majority” of borrowers continue to service their debts and most have
maintained or added to their mortgage buffers.
But the RBA says “only a very small
share” of borrowers face negative equity because of the ongoing growth in
housing prices.
The RBA says as a last resort most
borrowers would be able to sell their properties and repay their loans in full
before defaulting on repayments.
The review says borrowers on the
lowest incomes “are overrepresented” in the group most at risk from rising
unemployment.
While borrowers are historically
“more resilient” to rising unemployment in an economic downturn the RBA “most
would not have sufficient cash” to cover repayments if one or more household
members lost their job.
The Financial Stability Review comes
two days after the Reserve Bank left interest rates on hold at 4.35 percent
with RBA governor Michele Bullock ruling out an interest rate cut until next
year when inflation is expected to slow further.
The review singles out China as a
potential economic flashpoint given imbalances in the nation’s financial sector
and ongoing weakness in its real estate sector.
Chinese authorities announced a
range of stimulus measures earlier this week to support its slowing economy.
But the RBA warns “stress could
spill over to the rest of the Chinese economy and financial system which would
likely affect the global economy and financial system.”
The review also highlights rising
geopolitical tensions in Ukraine and the Middle East as key risks with
potential fallout in Australia.
Australian banks have a “high level
of resilience” and remain well-positioned with
a deterioration on economic conditions unlikely to halt lending activity.
Arrears in non-bank lenders have
picked up, but the RBA says system-wide risks remain contained.
Other risks noted in the review
include the rapid digitisation of the financial system, an increase in
“complexity and interconnectedness” from the rising of artificial intelligence
and cloud computing.
The Crowdstrike global outage two
months ago where computers in much of the world were taken offline was cited as
a key example, given the everpresesent risks of cyberattacks by criminal
hackers.