Interest rates have risen at record pace. So, why aren’t more borrowers in strife?
Interest rates have risen at a record clip during the past year, taking the Reserve Bank’s cash rate from virtually zero to an 11-year high of 4.1 per cent.Rates of mortgage arrears remain low even though many home borrowers are under added financial pressure.The Australian Prudential Regulation Authority, which supervises banks, said in June the proportion of non-performing home loans “remained well below” pre-pandemic levels at 0.72 per cent of outstanding residential mortgages.
“In simple terms, there are more options there if borrowers are feeling debt serviceability pressures,” she said. “They can take on a second job, for example, to help.”by the end of next year as higher rates hit the economy. That implies about 140,000 workers could lose their jobs over the next 18 months.Another reason for the low prevalence of mortgage strife is the long period of favourable borrowing conditions before rates spiked.
Kitson says favourable financial conditions prior to mid-2022 helped households make the transition to higher rates, although the savings ratio has now fallen back to more normal levels. “There was a buffer there for a lot of borrowers to draw on which has probably delayed the impact of arrears going up,” she said.
“The last 12 months have been pretty tough for mortgagors, perhaps the toughest in living memory,” Phillips said. “They are more likely to be first homeowners who haven’t had as long a time to build up saving buffers.”
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