Australian homeowners are well-placed to cope with a rise in interest rates, according to a new report, despite their borrowings increasing faster than their incomes are rising.
The report, published by the Australian Bankers’ Association, says that although households are increasing their borrowings for housing, they are also prepaying their loans to a greater degree.
“This repayment of the principal more quickly than required by the minimum payment is being achieved by putting extra money into mortgage offset or redraw accounts or by paying down the loan directly,” the report states.
“The proportion of housing loans with a redraft and/or an offset facility has increased steadily in recent years... For example, the rise in the proportion of housing loans with offset facilities from 20% in 2008 to over 30% in 2015 means there has been in excess of a 50% increase in the proportion of housing loans with this facility over those seven years.”
As a result, the report claims that households are now, on average, 28 months ahead on their mortgage repayments – meaning households are more resilient despite holding more debt.
“This gives households greater resilience in managing their finances, as the prepayment buffer can be drawn upon in times of stress, such as unexpected expenses or changes in employment. It also means households are well placed to accommodate an increase in interest rates when the Reserve Bank eventually commences a new policy tightening cycle.”
However, the report also points out that the current growth cycle in the property market still does not come close to the growth cycle pre-GFC.
“Despite the recent media focus on the increase in house prices in some capital cities, the rate of growth of borrowing for housing is much slower today than it was prior to the GFC.
“Over the past two years or so, the growth rate has gradually accelerated to 7.3% (March 2015), but this is well below the average rate of growth in the pre-GFC era and much lower than the last significant high point of 22% in 2004.”