NATION Homeowners fail to save for a rainy day
ONE in three mortgage customers have little or no wiggle room and no buffer tucked away in 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 are well ahead of their loans, a large chunk have 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 that restrict extra repayments and some were investor mortgages, the holders of which typically have 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 two- and- a- half years ahead of scheduled repayments at existing rates.
In the report, the RBA sends out a stern warning to Australians who have racked up too much debt, stating that while some households have taken advantage of low interest 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 central bank said the banking regulator, the Australian Prudential and Regulation Authority, should be pleased with the 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 has resulted in investor lending easing, but at the same time 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 are likely to be stung by higher borrowing costs by either having to steer clear of interest- only loans and switch to principal and interest deals or being stung by higher interest rates.
Property prices nationally have also weakened, with the review stating “apartment prices have continued to record weaker price growth than detached housing consistent with the increased relative supply of apartments”.
CoreLogic data shows national dwelling values rose by 8 per cent in the 12 months to September to a median value of $ 540,647.
The RBA board has kept the cash rate on hold at 1.5 per cent since August last year and financial experts don’t expect any movement in the market until 2018.