The Reserve Bank of Australia (RBA) has warned that the number of Australians experiencing mortgage stress, while currently small, could increase if the economy slows more than expected or interest rates remain high for longer. In its semi-annual financial stability review, the bank noted that about 5% of owner-occupiers with variable-rate mortgages have incomes insufficient to cover essential expenses and loan repayments.
However, the RBA stated that fewer than 1% of housing loans are more than 90 days in arrears, and this level is expected to remain near pre-pandemic levels. The vast majority of borrowers are servicing their debts, and rising property prices mean that fewer than one in 10,000 borrowers are both in arrears and in negative equity.
The review comes after the RBA left interest rates unchanged for the seventh consecutive meeting, with markets increasingly expecting the next move to be a cut. Falling inflation and the implementation of Stage 3 tax cuts are expected to ease household budget pressures in the second half of 2024.
For businesses, conditions remain challenging, particularly for smaller firms. Business insolvencies have risen sharply since the end of pandemic support, but remain only slightly above pre-pandemic levels as a share of all businesses. Companies in discretionary sectors like hospitality face relatively tough conditions.
The RBA also identified external risks, including ongoing weakness in China's property market, which could spill over to Australia via reduced demand for Australian goods and services. Geopolitical tensions and climate change were also cited as potential vulnerabilities.
