Borrowers with low incomes, high loan balances are feeling the strain as higher mortgage payments eat into cash flows and savings buffers, the Reserve Bank says.
A rising number of borrowers are on the brink of financial stress as higher interest payments exceed their incomes and deplete their savings, the Reserve Bank said.
The number of homeowners on variable mortgages whose basic expenses costs exceed their income jumped from 1 per cent in April 2022 to 5 per cent.This was because the share of strained borrowers was relatively modest and that adjustments could be made so they could service their mortgages. Renters, meanwhile, were feeling the pinch but posed a limited threat to financial stability because they had little debt.
If the cash rate was to increase by 50 basis points to 4.6 per cent, the estimate increases to 16 per cent. “Borrowers with low incomes, large loans relative to their income or property value and low savings are particularly at risk.”
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