Lending remains tight
Borrowers have been walloped by the ongoing increase in mortgage rates.
Although it seems that interest payments have only increased to a manageable level, this doesn't reveal the full picture.
Less than a decade ago, almost 40 per cent of mortgages by value were on interest-only terms.
In the first quarter of 2024, the share of loans on interest-only terms fell to another record low of just 11 per cent, as the squeeze continues.
After accounting for principal repayments therefore, mortgage repayments have steepled higher, and mortgage arrears are rising quite quickly now, up to 1.6 per cent for 30+ day mortgage arrears by the first quarter of 2024, with more to come as mortgages continue to reset to higher rates.
The regulator APRA monitors various forms of 'riskier' lending, all of which are at now tracking at considerably lower levels than they've been historically.
While other countries are now seeing incomes running at a much higher annual rate than inflation, Australia stayed locked down for longer and we aren't there yet.
Structural budget deficits both at the Federal and State level in Australia haven't helped with the inflation battle, it must be said.
Eventually disposable incomes will begin to rise, as inflation falls back to below 3 per cent at the end of 2024.
Even still, debt to disposable income ratio has fallen back to 1.85x, and has been easing over recent quarters.
Borrowers are still being stress-tested with a 3 percentage points lending assessment buffer, even though financial markets are pricing for lower interest rates through the course of 2025.
In the meantime, housing starts are unlikely to keep pace with population growth, and thus the rental crisis remains far from resolved.
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