Australian households have managed to weather the storm of rising mortgage rates and inflation
The portion of housing loans 30 to 89 days overdue rose to just 0.54 per cent of loans, showing minor impact. Image: Canva.
  • Australians resilient against rising mortgage rates and inflation.
  • Mortgage owners withstand higher costs with a non-performing loan rate of only 0.80%.
  • Data shows reduced reliance on credit, with market activity dominated by wealthier buyers.

Australian households have held strong against the current inflationary cycle.

CoreLogic’s analysis of the Australian Prudential Regulation Authority’s (APRA) latest September quarter property exposures has indicated that Australians managed to weather the higher mortgage costs resulting from repeated cash rate target rises.

Mortgage owners undeterred by high inflation environment

While it was true that the non-performing loan rate was rising, it grew to a mere 0.80% of outstanding housing credit. Additionally, the proportion of housing loans 30 to 89 days overdue lifted to only 0.54% of loans.

The endurance borrowers have shown was remarkable, given the steep rise in mortgage rates since April 2022. Based on the Reserve Bank of Australia’s (RBA) average owner-occupier mortgage rate, and supposing the November rate increase has passed on fully, the average variable rate was estimated to be about 6.25%.

Put differently, a borrower with a $750,000 loan in April 2022 must pay around $1,690 more monthly to variable-rate mortgage repayments.

The figures showed that households have stood firm despite having diminished savings, be it through taking more shifts, allotting less money towards mortgage saving buffers, and directing funds towards scheduled repayments instead.

It is important to note that while Australians have been able to service their mortgages so far, many have been doing so just barely, with other research showing that 30.1%, or 1,514,000 mortgage holders, were at risk of mortgage stress in the three months to October 2023.

Data good news for financial stability

CoreLogic head of residential research, Eliza Owen, exclusively told The Property Tribune that data was welcome because it was evidence of financial stability in the real estate market.

“Homeowners are broadly still able to service their mortgages. Without that level of serviceability. You’d probably see more distressed stock coming to the market for sale, and that would put a damper on property prices,” she said.

“Now reduced property prices from higher levels of supply are not in itself a bad thing, but it can create additional risk because it means those who are selling need to recover debt would be at risk of selling in a falling market.”

“So broadly speaking, this is a good development for financial stability.”

Eliza Owen, CoreLogic

Owen qualified her statement by noting that the lack of sales may be taken as bad news by people searching for properties available at an affordable price.

“Obviously, it’s not a good thing when it comes to available properties that are at an affordable price. But it contains things from a financial stability perspective.”

People are still borrowing, but less reliant on credit

Underlying decisions to increase the cash rate target has been the desire to see demand, and consequently, inflation, fall. Owen said that there was good evidence indicating that the rate hikes were starting to kick in, with fewer people being reliant on credit.

“People are definitely still borrowing to buy homes, but the data from the banking regulator, APRA, suggests that buyers in the market at the moment are indeed less reliant on credit.

“And they’re probably wealthier buyers who either have a big deposit, or maybe they’ve profited from the sale of another property, and that means that the portion of new loans that are going out with low deposits are reducing as a share of mortgages overall.

“So, the portion of loans originated with a deposit of 20% or less has reduced to 28% for owner-occupier borrowers, and that’s down from a peak of 45% in the December quarter of 2020.”

Owen said that while the data did not separate between first-time and non-first-time buyers, her guess was that first-time buyers were at a low level of market participation as they would depend on a large home loan.

Future rate hikes data-dependent, but some believe they are over

The RBA Board will reconvene in February 2024, making its new meeting schedule eight meetings yearly. Importantly, the RBA said that it would pay close attention to the data when deciding whether to tighten monetary policy further.

Owen explained that several data points, including inflation, changes in household spending, employment, and price setting among businesses, influence the RBA’s decisions.

Moreover, they also account for uncertainties caused by international developments.

“The strength of the Chinese economy could add some inflationary pressure in Australia because it would increase economic activity and potentially demand from abroad.

“International conflicts can also put upward pressure on energy commodities such as oil, especially when we talk about conflict in the Middle East, so that would put upward pressure on inflation as well.

“And the other thing that they’ll be looking for in data flows is the kind of lag impact of monetary policy.”

“There are a few commentators now who are suggesting that the RBA may have tightened enough that there could be a risk of over-tightening, and that will depend on how long it takes for this high-interest rate environment to influence economic activity.”

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