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.”
Want to comment?
Send us an email, making it clear which story you’re commenting on and including your full name (required for publication) and phone number (only for verification purposes). Please put “Reader views” in the subject.
We’ll publish the best comments in a regular “Reader Views” post. Your comments can be brief, or we can accept up to 350 words, or thereabouts.
InDaily has changed the way we receive comments. Go here for an explanation.
Local News Matters
Media diversity is under threat in Australia – nowhere more so than in South Australia. The state needs more than one voice to guide it forward and you can help with a donation of any size to InDaily. Your contribution goes directly to helping our journalists uncover the facts. Please click below to help InDaily continue to uncover the facts.