Home loan arrears: The confronting number of Australians whose bills are more than their income

A worrying number of Australians with a mortgage now have bills higher than their income.

One in 20 borrowers now have negative cash flow, where expenses exceed their income, the Reserve Bank’s March Financial Stability Review revealed.

“Most borrowers remain able to pay their debts and cover essential costs with their income, even though their budgets are constrained by higher interest rates and inflation,” he said.

“However, it is estimated that about five percent of variable rate owner-occupier borrowers have had expenses exceeding their income as interest rates and prices have increased in recent years, leading to an estimated cash flow deficit.”

With the cash rate at a 12-year high of 4.35 per cent, the RBA warned borrowers would have to cut spending to cope, with Governor Michele Bullock declaring last week it was still too early. to talk about the prospect of a rate cut.

“If inflation remains high for longer than expected, the small number of borrowers who are near or in a cash flow deficit would have to make more difficult adjustments to their finances to meet their obligations,” the Bank report says. of the reserve.

The Reserve Bank also predicted that three per cent of borrowers would have no savings by the end of next year if interest rates remained high.

“Despite increased budget pressures in the higher-value-for-longer scenario, we estimate that less than 3 percent of variable-rate owner-occupier borrowers would be at risk of depleting their liquid savings reserves by the end of 2025. “, said.

“Mortgagors with low reserves and high leverage have been more likely to fall behind on their loan payments.”

The Reserve Bank said the high cash rate was a major factor causing negative cash flow, ahead of wages until recently lagging inflation and unemployment.

A borrower with an average mortgage of $615,178 has, since May 2022, seen their monthly mortgage payments increase by more than two-thirds, or 67.7 percent.

The Reserve Bank’s 13th interest rate increase in 18 months, in November, meant the typical borrower paid $3,966 a month, up $1,601 from $2,365 less two years ago.

But less than one percent of all mortgage loans are 90 days or more late, causing a loan default, and only two percent have payments 30 days or more late..

“Strong labor market conditions, the large savings reserves built up by many borrowers during the pandemic and rising house prices are helping households adapt to difficult economic conditions,” the RBA said.

“Many households have made adjustments, including reducing their discretionary spending and saving, increasing their work hours, and some have tapped into their savings reserves.”