Majority of households able to withstand higher home loan rates: RBA

City skyline.

Pandemic savings and ballooning asset prices have left Australian households in good shape to cope with rapidly rising interest rates, according to Reserve Bank of Australia deputy governor Michele Bullock.

In a speech to the Economic Society of Australia on Tuesday, Bullock said that the RBA was monitoring for risks among the one-third of Australian households currently paying off a home loan.  

"The sector as a whole has large liquidity buffers, most households have substantial equity in their housing assets, and lending standards in recent years have been more prudent and have built in larger buffers for interest rate increases," she said. 

"Much of the debt is held by high-income households that have the ability to service their debt and many borrowers are already making repayments well above what is required."

While Australia’s household debt-to-income ratio is high at 150 per cent, Bullock notes that most of the run-up occurred throughout the 1990s and the first half of the 2000s, and since then has remained fairly steady.

The large amount of savings households accumulated over the last few years — totalling $260 billion since the onset of the pandemic — will also help cushion the blow of higher mortgage repayments.

As for the expected dip in property prices, Bullock points out that borrowers have benefited from record growth in recent years, and while some of those gains might be undone in the near future, it won’t be enough to pose a risk to the system.

"Data suggests that a decline in housing prices of 10 per cent would raise the share of balances in negative equity to 0.4 per cent, which is still much lower than its peak of 3¼ per cent in 2019," she said.

"Even a fall of 20 per cent in housing prices would only increase the share of balances in negative equity to 2.5 per cent."

RELATED: How high will interest rates go? New forecasts from Westpac and NAB

Throughout the latest housing boom, the RBA maintained that there was little evidence lending standards had deteriorated. Indeed, banks have long been testing borrowers on their ability to withstand higher rates at APRA’s urging.

In October 2021, APRA recommended that banks add a margin of at least 3 per cent to their mortgage rates. Higher serviceability requirements, while limiting the amount many can borrow, have left households with spare servicing capacity.

But borrowers coming off fixed rate loans may be in for a shock, with the RBA estimating that the variable rates they roll over to could see them paying at least 40 per cent more each year.

"But given the very low interest payments and the broad-based increase in household saving rates, it is likely that many of these borrowers will have accumulated savings outside their mortgages ahead of any potential increase in repayments,” Bullock said.

"The accumulated stock of these savings could help to ease the transition to higher mortgage payments for many borrowers, allowing them to sustain higher levels of consumption than otherwise."

For more information on lending trends, head over to our home loan statistics page. And if you’re in the market for a home loan, visit our home loan comparison page, or browse the selection below.

Home loan comparisons on Mozo - last updated 11 August 2022

Search promoted home loans below or do a full Mozo database search . Advertiser disclosure
  • Variable Home Loan 70

    interest rate
    comparison rate
    Initial monthly repayment
    3.10% p.a. variable
    3.12% p.a.

    Affordable home loan rate for buyers or refinancers.. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 30% deposit required.

    Details
  • Unloan Variable

    Owner Occupier, Refinance Only

    interest rate
    comparison rate
    Initial monthly repayment
    3.14% p.a. variable
    3.06% p.a.

    For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.

    Details
  • PAYG Home Loan

    Owner Occupier, Principal & Interest, LVR<80%

    interest rate
    comparison rate
    Initial monthly repayment
    3.29% p.a. variable
    3.33% p.a.

    Low variable rate. Ideal for new home buyers or refinancers. Unlimited additional repayments. Unlimited free redraw. Application completely online. Optional 100% offset can be added for $120 p.a.. 20% deposit required.

    Details
  • Celebrate Variable Home Loan

    <60% LVR, Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    3.79% p.a. variable
    3.79% p.a.

    Fast and efficient online application. Automatic discounts as loan is paid down. Free extra repayments and redraw facility. Zero fees. Min 40% deposit required.

    Details

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.