The resilience of household borrowers in the face of surging interest rates has surprised Reserve Bank researchers. But things could get uglier from here.
My Friday afternoon Uber driver didn’t realise it, but he provided the perfect case study to back up the message theIvan works as an office tower concierge and lives in Campbelltown in Sydney’s south-west. He drives to work and accepts passengers on the way home to supplement his income. Like most Australians, he has a mortgage and his payments are going up, and although he’s got a job and a half, he’s anxious about his stretched finances.
– which captures basic non-discretionary expenses – about one in 20 households didn’t have sufficient income to meet mortgage and living costs.The RBA also assessed borrowers on a higher, and possibly more realistic, expense base that included school fees and private health insurance. These are quasi-discretionary items that are not easy to cut. On this measure, about one in eight borrowers is experiencing negative cash flows.
A third factor is most borrowers are sitting on profits as house prices have appreciated strongly over the past decade andOnly about 0.1 per cent of loans are categorised as being in negative equity, the Reserve Bank says. For instance, there is only a passing reference to renters, who the RBA acknowledges are doing it particularly tough. However, since they don’t tend to have large debts, the linkages and therefore threats to the broader financial system are minimal.Borrowers may be straining every sinew and scraping every dollar to service their home loans. But it becomes a problem for the banks, and the financial system, only when the mortgagors tap out and default.
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