Mortgage stress in Australia has eased recently, providing relief to many households. However, the Reserve Bank of Australia (RBA) continues to express caution regarding lending practices to ensure stability in the housing market.
Broker News reports that while the share of borrowers spending more than they earn has decreased, risks still linger, particularly with global economic uncertainties.
The RBA’s latest Financial Stability Review highlights the importance of maintaining lending safeguards to avoid potential vulnerabilities, emphasizing the need for careful management in an evolving financial landscape.
Ongoing Risks Despite Recovery
Despite the reduction in mortgage stress, the broader Australian economy faces several risks. Among the most significant are the slowing trade relations with China, persistent household debt pressures, and potential disruptions caused by recent tariff increases from the United States.
The RBA highlighted that the recovery in household finances does not signal the end of challenges for the broader economy.
“The share of households who have fallen behind on their mortgages has broadly stabilised at pre-pandemic levelsm,” the RBA noted.
However, risks remain, particularly with global trade dynamics, which could further impact Australia’s economic outlook.
Victoria stands out as the state most affected by mortgage stress. Larger loans and smaller savings buffers contribute to the strain faced by borrowers in the region.
While the share of households falling behind on their mortgages has stabilized at pre-pandemic levels, Victoria remains an exception, where debt repayment issues persist notably.
The report also mentioned that Victoria was the only state where the share of households more than 90 days behind on debt repayments had not seen a notable decline.
If current trends continue, the share of borrowers spending beyond their means is expected to fall further to 2% by the end of 2025.
RBA’s Warning on Lending Safeguards
In its review, the RBA emphasized the importance of lending safeguards, particularly the serviceability buffer, which is designed to ensure borrowers can meet their obligations even in times of economic stress.
The RBA warned that relaxing these protections could lead to excessive borrowing, potentially inflating property prices. The bank’s caution is especially pertinent as interest rates may continue to fall, which could exacerbate these issues.
The opposition Coalition has suggested relaxing lending rules if elected, proposing a reduction in the serviceability buffer to improve housing affordability. However, this proposal stands in contrast to the RBA’s recommendations, highlighting the ongoing debate over how to balance market stability and affordability.
The RBA also noted that global trade tensions, particularly with the United States, pose a risk to Australia’s economic recovery. Recent tariff increases on Australian imports by the US were flagged as a potential disruptor to global growth, which could undermine the progress made on inflation.
“Rapid shifts in trade and fiscal policies could alter the trajectory of global growth and undo some of the progress on inflation,” the RBA warned.
This adds a layer of complexity to Australia’s economic outlook as it navigates both domestic and international challenges.
