Interest repayments continue to get easier: Pete Wargent

Interest repayments continue to get easier: Pete Wargent
Interest repayments continue to get easier: Pete Wargent

EXPERT OBSERVER

It's like deja vu all over again! 

The historic ratio of household debt to disposable income was once again revised down, but the trajectory remained up. 
 
And in the end, we ended up back in the same old place, with an Aussie household debt ratio still at 1.9x disposable income. 
 
Note that the impact of tax and rate cuts has yet to flow through fully to these figures, so behavioural patterns could change going forward. 

 
The 'record high' headlines will naturally follow in due course, although the ratio was ostensibly about 200 per cent a couple of years ago - before previous revisions were pushed through - and the growth in housing credit has since been crunched lower (to record lows for housing investors, at zero growth). 
 
The bulk of Australia's household debt remains concentrated in the upper two income quintiles, while net of a huge surge in prepayments the debt-to-income ratio is pretty much unchanged since 2006. 
 
Treasurer Frydenberg was also lightning quick off the mark to highlight that the value of assets was 5x that of the debt. 
 
Meanwhile the ratio of household interest payments to disposable income continued to fall and sow sits well under 9 per cent.
 
This ratio is now some 33 per cent lower than at the 2008 peak, and trending lower (it was also higher in the late 1980s than it is today):

 
Interest rates have since fallen further in the September quarter, so further declines are in the post.
 
There has been some mortgage stress, even in spite of the household interest payments ratio being down by a third, mainly experienced in Western Australia and largely related to the forced interest-only mortgage reset.


That said, S&P expects arrears to fall as repayments have become easier. 
 
PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger

Pete Wargent

Pete Wargent

Pete Wargent is the co-founder of BuyersBuyers.com.au, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.

Tags: 
Loan Repayments Household Debt

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