Australian mortgage holders are likely to be more sensitive to interest rate hikes as household debt reaches new historic highs.
The latest household finances data from the Reserve Bank shows that in December 2014, the ratio of household debt to disposable income was 153.8%, its highest level on record. Housing debt accounts for 91% of total household debt and is recorded at a record high ratio of 140.3%.
According to an analysis by CoreLogic RP Data, Australia’s private debt is “extremely high” and unlike many other countries there hasn’t been a decline in that debt in the aftermath of the financial crisis.
However, the value of household assets is much higher than the debt. According to the Reserve Bank data, the ratio of household assets to disposable income is 813.8%, much higher than the ratio of household debt.
From the housing perspective, the ratio of housing assets to disposable income is recorded at 444.0% compared to the ratio of 140.3% for housing debt to household income.
According to CoreLogic RP Data, this highlights that although household and housing debts are high, the value of those assets is substantially higher than the level of debt. However, while this may be true at a national level it doesn’t mean that everyone is immune from the effects of an economic and/or housing downturn.
“Although these figures would provide some comfort that most households have the ability to sell assets to repay debt if they hit trouble, it is important to remember that it is a national view. There are areas of the country where households are much more susceptible to housing and economic downturns,” the CoreLogic RP Data analysis said.
“…While most households can comfortably meet their mortgage requirements with mortgage rates at these levels, it is important to remember that a mortgage is usually a 25 to 30 year commitment and mortgage rates can fluctuate significantly over that time.
“The fact that household debt levels merely flat-lined rather than reduced following the financial crisis creates some concerns about what will happen once mortgage rates start to normalise.”