Home borrowers with less than a month in reserve, so Reserve Bank steps up property warnings

One third of mortgage owners have less than a month's buffer against financial instability, the Reserve Bank has warned.

The RBA's half-yearly financial stability review, released today, suggested a decline in investor credit could reduce consumption sharply, then trigger a downturn in the market. 

"The concern is that investors are likely to contribute to the amplification of the cycles in borrowing and housing prices, generating additional risks to the future health of the economy," the RBA said.

"Periods of rapidly rising prices can create the expectation of further price rises, drawing more households into the market, increasing the willingness to pay more for a given property, and leading to an overall increase in household indebtedness."

The central bank warned elevated mortgage debt, especially among investors, would see pain felt across the broader economy if high debt, falling house prices, and rising unemployment combined.

It added the banks are well braced for a downturn should it come.

“The risks associated with strong investor credit growth and increased household indebtedness are primarily macroeconomic in nature,” the RBA said.

The RBA was confident that the banks are well capitalised and would ride out an economic downturn.

“Australian banks have continued to reduce exposures to low-return assets and are building more resilient liquidity structures,” it said.