Reserve Bank research finds more Australians falling behind on mortgage payments as arrears lift

Matt Mckenzie
The Nightly
About 2.5 per cent of highly-leveraged households were more than 90 days past the due date for their mortgage, the research paper shows.
About 2.5 per cent of highly-leveraged households were more than 90 days past the due date for their mortgage, the research paper shows. Credit: BraunS/Getty Images

More Australian homeowners are falling behind on their mortgages but Reserve Bank researchers are confident the pain won’t reach crisis levels.

It marks the end of a golden age for borrowers.

Mortgage arrears — measuring homeowners behind on debt payments — dropped dramatically during the pandemic when interest rates were slashed to an emergency low near zero per cent.

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Arrears have since returned to pre-pandemic levels and further increases are expected.

The modest rise has been driven by tougher economic conditions and ageing loans, RBA researchers Ryan Morgan and Elena Ryan said in a paper released on Thursday.

Bigger borrowers have been hardest hit.

About 2.5 per cent of highly leveraged households were more than 90 days past the due date for their mortgage, the research paper shows.

The central bank wants to keep a close eye on mortgage arrears because almost two-thirds of local bank loans are for housing.

A large lift in borrowers hitting trouble could lead to banks posting losses, restricting new loans, and leading to a sharp fall in economic activity.

That was the experience in the Global Financial Crisis.

But the researchers said the risks were “contained”.

Very few borrowers had debts higher than the value of their homes and the most high-risk households were only a small share of the market, the paper said.

“Banks are well placed to withstand increased loan losses, supported by their previous provisioning, strong profits and capital positions, and are further protected by the very low share of loans estimated to be in negative equity,” the report said.

Data from the Australian Securitisation Forum suggests Victoria and Tasmania have the worst performance on arrears, with both nearing 2 per cent.

More than $100 billion of the nation’s mortgages are securitised — meaning borrowers have been pooled together and the debt on-sold by banks to other investors.

The numbers also show arrears have rocketed for highly leveraged mortgages.

Almost 7 per cent of borrowers with loans worth more than 80 per cent of their home’s value have fallen behind by at least a month, according to the forum’s data.

That marries with the RBA’s view that households with high debts compared to their assets are hardest hit.

In June, RBA assistant governor Chris Kent said homeowners were cutting debts amid “acute” pressure on their finances.

Required mortgage payments as a slice of household income were at a record 10 per cent, he said.

The level of mortgage discharges — loans closed out through property sales or full payment — had increased more rapidly than new borrowing, Mr Kent said.

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