Loan stress rampant

RBA says little wriggle room in mortgages

ONE in three mortgage customers have little or no wiggle room and have neglected to have a buffer tucked away in the case of future rate hikes, the central bank has warned.

The Reserve Bank of Australia’s biannual Stability Review released yesterday found, while some mortgage customers were well ahead of their loans, a large chunk of borrowers had no financial back-up plan.

The review shows one-third of loans have less than one month’s buffer.

The RBA said some of those with no buffers were on fixedrate loans which restricted extra repayments and some were investor mortgages where typically these types of borrowers had tax incentives not to pay down debt.

But the overall discrepancy in how far ahead people are on their loans varies significantly. Many others are maximising record-low interest rates with aggregate mortgage buffers about 2½ years ahead of scheduled repayments at existing rates.

In the report the RBA has sent out a stern warning to Australians, who have racked up too much debt, stating that while some households have taken advantage of low inter- est rates and made excess mortgage repayments others have simply increased their borrowings.

“Higher interest rates or falls in income could see some highly-indebted households struggle to service their debt and so curtail their spending,’’ the RBA said.

The banking regulator, the Australian Prudential and Regulation Authority, should be pleased with their crackdowns on lending, which included a 30 per cent cap on interest-only loans for new mortgages taken out and a 10 per cent benchmark on investor credit growth.

This resulted in investor lending easing, but means some borrowers may be pushed out of the market.

The RBA said: “Some households will not be able to borrow as much as previously though their smaller loan will be more manageable.”

The review also found some borrowers were likely to be stung by higher borrowing costs by having to steer clear of interest-only loans and switch to principal and interest deals or being stung by higher rates.

Property prices nationally have also weakened. CoreLogic data shows national dwelling values rose by 8 per cent in the 12 months to September to a median value of $540,647.