House­hold debt risk to bank sec­tor

The West Australian - - NEWS - Shane Wright Eco­nomics Edi­tor

Grow­ing house­hold debt is the sin­gle big­gest risk to the na­tion’s en­tire fi­nan­cial sys­tem, the Re­serve Bank has warned while also cau­tion­ing Perth home­buy­ers to ex­pect some more price pain in com­ing months.

The bank used its six-monthly re­view of the strength of the fi­nance sec­tor, which cov­ers banks to in­sur­ance com­pa­nies, to high­light its un­ease about the level of debt be­ing car­ried by many Aus­tralian home­own­ers.

Aus­tralian house­holds are among the most in­debted in the de­vel­oped world on the back of low in­ter­est rates which have in turn pushed up hous­ing prices in many of the na­tion’s big cities.

While the RBA ar­gued its ef­forts, along with bank reg­u­la­tors, to im­prove lend­ing stan­dards on top of the im­prov­ing fi­nances of many peo­ple were sta­bil­is­ing the over­all sys­tem, there were clear con­cerns about to­tal house­hold debt.

“House­hold in­debt­ed­ness, most of which is mort­gage bor­row­ing, is high and grad­u­ally ris­ing against a back­drop of low in­ter­est rates and weak in­come growth,” it said.

“While some house­holds have taken ad­van­tage of low in­ter­est rates to make ex­cess mort­gage pay­ments, oth­ers have in­creased their bor­row­ing.

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

It also warned that Perth house prices in par­tic­u­lar parts of the city were likely to fall a lit­tle fur­ther in com­ing months.

It said the high level of home and cor­po­rate va­cancy rates were also weigh­ing on the city.

“Weak con­di­tions in WA and a sig­nif­i­cant in­crease in new apart­ment build­ing in Bris­bane have in­creased the po­ten­tial for fur­ther lo­calised hous­ing price cor­rec­tions,” it said.

Com­mSec chief eq­ui­ties econ­o­mist Craig James said the Re­serve Bank be­lieved the fi­nan­cial sys­tem had strength­ened.

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