households are ahead on mortgage repayments, despite an increase in their appetite for risk and an increase in household lending.
According the Reserve Bank, Australian households’ appetite for risk has increased over 2014 due to the low interest rates – reaching historically high levels.
“The willingness of some households to take on more debt, combined with slower growth in incomes, means that the debt-to-income ratio has picked up a little in the past six months. While this ratio is still within its range of the past eight years at around 150%, it is historically high…” The Reserve Bank said in its Financial Stability Review.
Even though the low rate environment is encouraging households to take on more risk, the Central Bank says it has also stabilised the proportion of disposable income required to meet interest payments on mortgage debts.
“Households continue to take advantage of lower interest rates to pay down their mortgages more quickly than required,” the RBA
“The aggregate mortgage buffer – balances in mortgage offset and redraw facilities – has risen to be around 15% of outstanding balances, which is equivalent to more than two years of scheduled repayments at current interest rates. Prepayment rates and the proportion of borrowers ahead of schedule on their mortgage repayments are also high according to liaison with banks.”
However, the Reserve Bank will be keeping an eye on lending practices to ensure that the market doesn’t become complacent.
“In an environment of historically low interest rates, rising housing prices and strong price competition in the mortgage market, there is some risk that households may attempt to take out loans that they would not be able to service comfortably if interest rates were to rise,” the RBA
“Lenders’ credit decisions and policies should be, and in Australia generally are, designed to prevent this.”