Household debt falling Reserve Bank says it’s still too high
AUSTRALIAN households are saving more and paying down their debt thanks to a strong economy but levels of indebtedness remain historically high, a central bank report says.
In recent years Australian households and businesses had benefited from solid growth in employment and wage incomes, the Reserve Bank of Australia said in its half yearly Financial Stability Review.
‘‘ They are continuing to consolidate their finances, saving at a much higher rate in recent years and slowing the pace of debt accumulation,’’ the RBA said yesterday.
The central bank said that in 2010 households were saving 10 per cent of their net disposable income, which compared to levels of below four per cent first half of the 2001-2010 decade.
It said that a series of interest rate cuts in 2008 and 2009 had encouraged Australians to get ahead on their mortgage repayments.
‘‘ Between August 2008 and April 2009, the average stand a r d v a r i a b l e mortgage interest rate fell by almost four percentage points,’’ the central bank said.
‘ ‘ There i s evidence t o suggest that some households used this period as an opportunity to pay down their mortgage schedule.’’
The central bank published its previous Financial Stability Review in September 2010, and since then has raised the cash rate from 4.5 per cent to 4.75 per cent in November.
The commercial banks responded to the rate hike by raising their variable home loan interest rates by more than a quarter of a percentage point official increase by the Reserve.
H o w e v e r , m o r t g a g e holders have coped with the increase, the RBA said.
‘ ‘ A r a nge o f f i nanci a l stress indicators show that the household sector is cop-
of ing reasonably well with its d e b t l e v e l s a n d h i g h e r interest rates,’’ the RBA said in the review.
‘‘ While arrears rates on mortgages are higher than the low levels reached during the late 1990s and early 2000s, they remain low by international standards.
‘‘ Household indebtedness remains historically high and recent increases in interest rates have lifted the aggregate debt servicing requirement,’’ the RBA said.
The central bank warned that the improved debt and savings positions of Australian households could change if wages growth was reduced.
GOOD NEWS: mortgage arrears low by global standards