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Number of mortgages behind on payments highest since 2010: RBA

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The Reserve Bank believes the number of home owners behind on their mortgages could keep climbing for some time, although not to levels that might threaten Australia’s financial stability.

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Jonathan Kearns, the RBA’s head of financial stability, says housing arrears have risen to their highest level since 2010 and could increase further against a backdrop of weak wage growth and lower house prices.

But he says the level is still well below that reached in the early 1990s recession, and remains low by international standards.

Kearns says economic conditions had helped drive a cyclical upswing in arrears, with borrowers hit by unemployment, weak wage growth or – in some areas – an absence of tenants to get out of difficulty by selling their property.

He added that tighter lending standards could have had an effect, forcing some interest-only borrowers onto principal and interest loans with higher repayments, and making it harder for others to refinance with longer-term or lower-interest loans.

“Recognising the greater risk of interest-only lending, banks continue to charge higher interest rates for these loans and more carefully scrutinise their suitability for borrowers,” Kearns told the Property Leaders’ Summit in Canberra on Tuesday.

“As a result, some borrowers who may have anticipated being able to roll over an interest-only period are finding they cannot.”

Financially stretched borrowers are those who would most benefit from cheaper loans but are generally those who find it hardest to secure refinancing, Kearns noted.

Even in a post-royal commission environment, Kearns said he thought it unlikely that banks were contributing to the rise in arrears by displaying greater forbearance in response to their own past poor lending decisions.

“In an environment of falling housing prices, allowing a borrower to remain in arrears for longer would increase the loss that the borrower, and so the lender, is exposed to,” he said.

“This wouldn’t seem to be operating in the best interests of the borrower, or for that matter even the lender.”

-AAP

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