Households handling debt well

by Adam Smith27 Jan 2015
Households are managing debt well, but an economic shock that saw interest rates hiked could see mortgage stress climb.

ANZ economists David Cannington and Katie Hill have claimed a severe economic shock that saw sharp interest rate hikes could destabilise household debt and lead to a wave of mortgage delinquencies, Fairfax has reported.

Cannington and Hill said household debt is currently out-pacing household income by 1.7 times. The current level of debt is manageable, given low interest rates and consumer caution, the pair said.

But interest rates would have to climb as high as 4.5% by the December quarter of 2016 in order to bring on unmanageable levels of debt, ANZ said. Moreover, rate hikes would have to be accompanied by a spike in unemployment.

"We think broad-based job losses are the key risk to a significant increase in mortgage defaults," ANZ said.